Global Spotlight Report #25: Carbon Pricing Mechanisms

Introduction

Global Spotlight Report #25 provides information on the currently implemented or planned on carbon pricing mechanisms in leading greenhouse gas emitting countries. Such mechanisms include a carbon tax on energy consumers and/or producers, producer-focused emissions trading systems, voluntary carbon markets, and others.

Many analysts believe that carbon pricing, especially a carbon tax, offers the most effective way to curb emissions. However, the caveat is that the price on carbon needs to be very high, e.g. around $50.00 a ton, in order to effect the goal of a 50% drop in current emissions levels by 2030 as proposed by the Inter-Governmental Panel on Climate Change.

The imposition of a carbon tax has sparked protests in countries like France by working class people who don’t see the benefits of such a tax. The French, as well as Canadians, are attempting to address this issue by refunding the proceeds of their carbon tax in the form of a dividend to all citizens.

The main alternative to the carbon tax is an emissions trading or cap and trade system. Here, the government sets a price on carbon and then implements a system whereby companies that exceed the price are allowed to buy permits that they can trade for credits with companies that price carbon below the set level.

Several countries (e.g. China, South Korea, Mexico) and regions (e.g. the European Union) have launched emissions trading system with limited success. Challenges to such systems include setting a too low base carbon price, issuing too many permits, and a lack of enforcement.

As the country descriptions in this report indicate, carbon pricing is still in its infancy and has yet to clearly demonstrate such a large impact on emissions. Perhaps this is due to the limited regions in which they have been implemented or shortcomings in how they have been designed. We just don’t know enough yet to assess the worth of  carbon price mechanisms. Also many of them still have the potential be scaled strengthened.

We hope the descriptions of the country carbon pricing mechanisms in this report add to the information about the status of these efforts in leading greenhouse gas emitting countries.

Ron Israel
Director
Climate Scorecard
www.climatescorecard.org


Country Reports

Australia’s Ill-Fated Emissions Trading System

In 2011 Australia’s federal government, led by Labor PM Julia Gillard, passed the Clean Energy Act. The Act sought to regulate carbon pollution by putting a fixed price on emissions, which would be overseen by a newly-created regulator. Entities that emitted above a certain threshold would need to purchase one “carbon unit” for each tonne…

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Brazil Launches New Private and Public Policy Carbon Pricing Initiatives

Carbon pricing – a key tool to combat climate change – is gaining momentum all around the world, including in emerging markets such as Brazil. Since 2013, there has been rapid growth in Brazilian corporate adoption and support for carbon pricing as a mechanism to prepare for a climate-constrained future. Leading companies (including Itaú Unibanco,…

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Canada’s Carbon Pricing Strategy Moving Ahead

The national Greenhouse Gas Pollution Pricing Act (GGPPA) adopted June 21, 2018 as Canada’s carbon pricing system, establishes a greenhouse gas emissions (GGE) pricing standard as a core element of Canada’s strategy to meet its Paris Agreement targets. As of January 2019, for any provinces and territories without a carbon tax, cap-and trade system or…

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China Seeking to Set Carbon Price Through its Emissions Trading System (ETS)

China is seeking to set a carbon price through its Emissions Trading System (ETS). A specific carbon tax for industry is currently not considered in order to ease the burden on smaller businesses and avoid jeopardizing China’s economic development. An “Environmental Protection Tax” was officially introduced on January 1, 2018, however, the tax is levied…

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The EU Emissions Trading System Seeking to Improve

The 1990s saw the first attempt of the EU to introduce a carbon tax. Strong industrial lobbying led to its failure. In 2005, EU succeeded to negotiate and introduce an alternative to a carbon tax known under the European Union Emissions Trading Systems or EU ETS. EU ETS follows the ‘cap and trade’ principle. It…

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Photo by: Patrice Calatayou

A Low Ineffective French Carbon Tax Lies Frozen at 2018 Level

France puts a price on carbon both through a national carbon tax system and through a common cap and trade system of the European Union. The national carbon tax (officially la composante carbone, CC; more commonly known as la taxe carbone) was launched in 2014. The tax, taking the form of an excise duty, is…

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A National ETS with a Moderate Price to be Introduced in Germany in 2021

As of 2021, Germany will put a price on each ton of carbon emitted. In December 2019, the federal government, finally, agreed to initiate a fixed carbon price through a national emission trading scheme (ETS) starting with a moderate price of 25 €/ton in 2021 and reaching as high as 55 €/ton in 2025. This…

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Indian Businesses Take the Lead on Carbon Pricing

The government in India, until recently, has not put in place a carbon tax or cap in the trade system. However, leading Indian companies have set up their own carbon pricing mechanisms following a three-phase process. In the foundational phase, a company assesses how much carbon it is emitting through greenhouse gas inventories. In the…

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Indonesia Focuses on Mechanisms that Support Sustainable Land Use and Forestation Projects

Indonesia does not have a carbon tax, has not put a price on carbon, nor has an emission trading system. However, there are several sources that finance projects to reduce emissions, especially from land use, land use change, and forestry (LULUCF). In October 2019, the most recent financing mechanism was announced. The Environmental Fund Agency,…

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A Mismatch Between Italy’s Carbon Pricing Regulations and the EU’s Emissions Trading System

In the European Union (EU), the Emission Trading System (ETS) sets out the policy architecture to introduce carbon pricing. ETS was introduced in 2003 with Directive 2003/87/EC, which was significantly reformed in 2008 when long-term climate targets for the first half of the century were presented in 2011. After the Paris agreement, the Directive was…

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Japan Pioneers First Urban-Based Emissions Trading System

At the government level, a tax on oil-based products and energy resources such as gas, LPG, coal and others has been charged at the rate of 289 yen per tCO2, starting from 2012, in Japan. The tax raised is being used to help support the building of energy-efficient infrastructure, renewable-energy production, and other measures to…

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Mexico’s Well Established Carbon Tax and Pilot Emissions Trading System with California and Quebec

Mexico approved Carbon Taxing in 2013 under the Fiscal Reform presented by the administration of former President Peña Nieto. The carbon tax is a tax rate applied to the emission of greenhouse gases into the atmosphere. By setting a tax rate on the carbon dioxide content of fossil fuels the tax results in establishing a…

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An Absence of Carbon Pricing in Russia

Unfortunately, at the moment there is nothing remotely resembling carbon pricing in Russia. No carbon tax, no cap and trade, no planned pricing or any additional mechanisms. About a year ago there was some talk about introducing a carbon tax but it ended in total failure. The word “tax” was met with a huge protest…

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The Absence of a Carbon Pricing System in Saudi Arabia

To date, Saudi Arabia doesn’t put a price on carbon emissions. Saudi Arabia neither has a carbon tax, nor a cap and trade system pricing mechanism in place. However, in October last year, the Saudi Energy Ministry announced plans to launch a carbon trading scheme as part of the kingdom’s goal to diversify its energy…

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South Africa Launches a Carbon Tax on Energy Producers

After years of deliberation, South Africa introduced a carbon pricing system in June 2019. Climate change is one of the leading challenges facing human kind and the primary objective of the carbon tax is to minimize greenhouse gas (GHG) emissions in a sustainable, cost effective and affordable manner. Consequently, the President Cyril Ramaphosa signed into…

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East Asia’s First Mandatory Emissions Trading System

South Korea does not have a Carbon tax, but does have a trading system. Korean Emission Trading System (KETS) has been in operation since January 2015, becoming East Asia’s first nationwide mandatory ETS and the second-largest carbon market after the EU ETS. KETS is designed to play an important role in meeting Korea’s 2030 NDC…

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Spanish Carbon Pricing the Lowest in the EU

As part of the European Union, Spain has historically not had an explicit carbon tax on all products but has generally priced its general energy taxes at high levels for the everyday consumer. Spain began pricing a portion of its carbon in 2014, and according to the OECD’s records from that time, Spain priced over…

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A Voluntary Carbon Market in need of Carbon Pricing Policy in Turkey

Turkey does not currently mandate a carbon pricing policy. However, projects for the Voluntary Carbon Market, established within the framework of the principle of environmental and social responsibility, have been developed and implemented for a long time. A Voluntary Carbon Market is a market created to facilitate the voluntary reduction and balancing of greenhouse gas…

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Ukraine Has the World’s Lowest Carbon Tax

The only financial instrument that Ukraine has to stimulate the reduction of greenhouse gas emissions is a carbon tax. It is the lowest carbon tax in the world at 10 UAH (0.40 USD – March, 2020). The tax applies only to objects that emit more than 500 tons of carbon dioxide per year. This tax…

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Brexit Poses a Challenge for Carbon Pricing Mechanisms

Currently, the UK partakes in the EU Emissions Trading System, an international carbon trading platform that works on a cap and trade system. As of January 2021 the UK will leave the EU ETS as it exits the EU. The UK will try to link its own cap and trade program into the EU ETS…

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Absence of a Federal Carbon Price and Mechanism in the US

The United States does not have a federal carbon price. However, at the state and regional level, eleven states covering approximately thirty percent of the U.S. population participate in carbon pricing programs in the form of Cap and Trade systems. These include the Regional Greenhouse Gas Initiative (RGGI) for Northeast and Mid-Atlantic states and California’s…

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