New Reports on Carbon Pricing

International coordination and possible effects on competitiveness

November 2019 - The pricing of greenhouse gases is increasing worldwide. A growing share of global greenhouse gas emissions has been priced in recent years and more and more market-based instruments are being planned, developed and introduced, both at national and sub-national level.

While this development is in principle to be welcomed, it has also raised questions about its possible impact on the competitiveness of companies and economies. Policy makers considering the introduction of carbon pricing instruments are concerned about the potential impact of the carbon price on competitiveness. Against this background, the paper Carbon pricing and competitiveness: Are they at odds? evaluates empirical ex-post analyses of the impact of carbon pricing on the competitiveness of electricity and industrial sectors in OECD and G20 countries. The authors of the paper conclude that the studies do not provide evidence for the feared short-term negative effects of carbon pricing on the international competitiveness of companies and sectors, at least not yet. However, these findings can be explained, among other things, by the fact that CO₂ taxes have so far had low price levels and exemptions for industry, while companies covered by an emissions trading scheme have benefited from a generous free allocation of allowances.

Another issue raised by the proliferation of carbon pricing schemes relates to the need to coordinate these policies through international cooperation. The trend towards more carbon pricing has led to a great diversity in the design of the mechanisms. This could subsequently prove to be an obstacle in linking the systems and reduce the available climate protection potential. The paper Improving Economic Efficiency and Climate Mitigation Outcomes through International Co-ordination on Carbon Pricing presents the potential benefits and challenges of increased international co-ordination of carbon pricing and outlines different types and levels of co-operation available to national and sub-national governments. The paper concludes that governments can build up a "network of carbon pricing systems" through increased coordination at different levels. This network can support the implementation of NDCs and lead to an increase in climate protection and ambition.

Both OECD Working Papers were developed within the framework of the Carbon Market Platform.

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