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New Studies on Carbon Pricing

International coordination and potential impacts on competitiveness

Photo by Sam Bark on Unsplash
Photo by Sam Bark on Unsplash

November 2019 – Carbon pricing is spreading worldwide. An ever greater share of global greenhouse gas emissions has been covered by carbon pricing in recent years. And more and more price-based mechanisms are being planned, developed and introduced both at national and sub-national level.

While this trend is positive, it has also raised questions about the potential impact on the competitiveness of businesses and economies. Policymakers considering the introduction of carbon pricing are often concerned that putting a price on carbon could have adverse effects on competitiveness. Against this backdrop, the paper “Carbon pricing and competitiveness: Are they at odds?” reviews ex-post empirical assessments on the impact of carbon pricing on competitiveness in OECD and G20 countries in the electricity and industrial sectors. The paper finds that concerns about negative short-term effects of carbon pricing on firms’ or sectors’ international competitiveness have not come to pass, at least to date. These findings, however, are in part because carbon price levels have been low and because of exemptions to carbon taxes for industry, or generous levels of free allowances to firms covered by emissions trading schemes.

Another question raised by the global spread of carbon pricing schemes relates to the need to coordinate these policies through international cooperation. The carbon pricing trend has resulted in a large diversity mechanisms’ design, which could prove difficult for subsequent linking of the various schemes and reduce climate change mitigation potential. The paper “Improving Economic Efficiency and Climate Mitigation Outcomes through International Co-ordination on Carbon Pricing” presents the potential benefits and challenges of enhanced international co-ordination on carbon pricing and outlines the different types and levels of co-ordination that are available for national and sub-national governments. By increasing coordination at different levels governments can develop a bottom-up ‘web of carbon pricing schemes’, which can be an important element in supporting the achievement of Party’s NDC and which has the potential to support greater levels of climate action and ambition.

Recent Developments

Both OECD Working Papers have been prepared in the context of the Carbon Market Platform.