Publication: Measuring Total Carbon Pricing
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Date
2023-07-11
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2023-07-11
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While countries increasingly commit to pricing greenhouse gases directly through carbon taxes or emissions trading systems, indirect forms of carbon pricing—such as fuel excise taxes and fuel subsidy reforms—remain important factors affecting the mitigation incentives in an economy. Taken together, how can policy makers think about the overall price signal for carbon emissions and the incentive it creates This paper develops a methodology for calculating a total carbon price applied to carbon emissions in a sector, fuel, or the whole economy. It recognizes that rarely is a single carbon price applied across an economy; many direct carbon pricing instruments target specific sectors or even fuels, much like indirect taxes on fossil fuels; and carbon and fuel taxes can be substituted one for another. Tracking progress on carbon pricing thus requires following both kinds of price interventions, their coverage, and specific exemptions. This inclusive total carbon pricing measure can facilitate progress in discussions on minimum carbon price commitments and inform assessments of the pricing of carbon embodied in traded goods. Calculations across 142 countries from 1991 to 2021 indicate that although direct carbon pricing now covers roughly a quarter of global emissions, the global total carbon price is not that much higher than it was in 1994 when the United Nations Framework Convention on Climate Change entered into force. Indirect carbon pricing still comprises the lion’s share of the global total carbon price, and it has stagnated. Taking these policy measures into account reveals that many developing countries—particularly net fuel importers—contribute substantially to global carbon pricing. Tackling fuel subsidy reform and pricing coal and natural gas emissions more fully would have a profound effect on aligning carbon prices across countries and sectors and with their climate costs.
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“Agnolucci, Paolo; Fischer, Carolyn; Heine, Dirk; Montes De Oca Leon, Mariza; Pryor, Joseph; Patroni, Kathleen; Hallegatte, Stephane. 2023. Measuring Total Carbon Pricing. Policy Research Working Papers; 10486. © World Bank. http://hdl.handle.net/10986/39976 License: CC BY 3.0 IGO.”
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Publication Measuring Total Carbon Pricing(Published by Oxford University Press on behalf of the World Bank, 2023-09-27)While countries increasingly commit to pricing greenhouse gases directly through carbon taxes or emissions trading systems, indirect forms of carbon pricing - such as fuel excise taxes and fuel subsidy reforms - remain important factors affecting the mitigation incentives in an economy. Taken together, how can policy makers think about the overall price signal for carbon emissions and the incentive it creates We develop a methodology for calculating a total carbon price applied to carbon emissions in a sector, a fuel, or the whole economy. We recognize that rarely is a single carbon price applied across an economy; many direct carbon pricing instruments target specific sectors or even fuels, much like indirect taxes on fossil fuels; and carbon and fuel taxes can be substituted for one another. Tracking progress on carbon pricing thus requires following both kinds of price interventions, their coverage, and specific exemptions. This inclusive total carbon pricing measure can facilitate progress in discussions on minimum carbon price commitments and inform assessments of the pricing of carbon embodied in traded goods. Calculations across 142 countries from 1991 to 2021 indicate that although direct carbon pricing now covers roughly one-quarter of global emissions, the global total carbon price is not that much higher than it was in 1994 when the United Nations Framework Convention on Climate Change entered into force. Indirect carbon pricing still comprises the lion's share of the global total carbon price, and it has stagnated. Taking these policy measures into account reveals that many developing countries - particularly net fuel importers - contribute substantially to global carbon pricing. Tackling fuel subsidy reform and pricing coal and natural gas emissions more fully would have a profound effect on aligning carbon prices across countries and sectors and with their climate costs.Publication Carbon Price Efficiency : Lock-in and Path Dependence in Urban Forms and Transport Infrastructure(World Bank, Washington, DC, 2014-06)This paper investigates the effect of carbon or gasoline taxes on commuting-related CO2 emissions in an urban context. To assess the impact of public transport on the efficiency of the tax, the paper investigates two exogenous scenarios using a dynamic urban model (NEDUM-2D) calibrated for the urban area of Paris: (i) a scenario with the current dense public transport infrastructure, and (ii) a scenario without. It is shown that the price elasticity of CO2 emissions is twice as high in the short run if public transport options exist. 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In addition to decisions related to emissions trading or carbon taxes, governments take actions that influence the prices of the fuels that generate those emissions, whether by directly setting retail prices, providing energy consumption subsidies, or levying energy taxes. Carbon price signals resulting from the combination of multiple policy instruments at one time are often unclear. Building on this observation, this report asks, how do different energy, climate, and fiscal policy instruments that affect the price of carbon interact And what overall price signal do these direct and indirect ways of pricing carbon send to the economy To answer these questions, the report adopts the concept of the total carbon price (TCP), introduced in Agnolucci et al. (2023a; 2023b), to estimate the net carbon price signal resulting from the most deployed energy, climate, and fiscal policy instruments that affect the price of carbon emissions. 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(ii) "Sunrise" green industrial policies are needed because they support the development of critical new technologies and sectors, bring down costs, and allow for reduced emissions in the short term even in the absence of carbon pricing. (iii) "Sunset" green industrial policies and trade policies may be needed in conjunction with safety nets to make carbon pricing politically or socially acceptable. They can help mitigate the impact of a carbon price on competitiveness and unemployment and smooth the transition by helping industries adjust to the new conditions. (iv) Green or not, industrial policy requires carefully navigating the twin dangers of market and governance failure. The viability of supported technologies and sectors is difficult to assess through a market-test given their dependence on continued environmental policies or pricing -- such as a carbon price. 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It is therefore misleading to assess the cost-efficiency of investments in low-carbon capital by comparing levelized abatement costs, that is, efforts measured as the ratio of investment costs to discounted abatement. The equimarginal principle applies to an accounting value: the Marginal Implicit Rental Cost of the Capital (MIRCC) used to abate. Two apparently opposite views are reconciled. On the one hand, higher efforts are justified in sectors that will take longer to decarbonize, such as urban planning; on the other hand, the MIRCC should be equal to the carbon price at each point in time and in all sectors. Equalizing the MIRCC in each sector to the social cost of carbon is a necessary condition to reach the optimal pathway, but it is not a sufficient condition. Decentralized optimal investment decisions at the sector level require not only the information contained in the carbon price signal, but also knowledge of the date when the sector reaches its full abatement potential.
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