Global Daily Tax News, New OECD Report Tracks Carbon Tax Trends, (Nov 18, 2024)

Reduced energy excise tax rates in many countries in response to the recent energy crisis led to lower implicit carbon prices in 2023, but the development of new emissions trading schemes should lead to a greater share of emissions being priced in the next five years, according to a new OECD report.

Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down tracks how emissions trading systems, carbon taxes, fuel and electricity excise taxes, and subsidies that lower pre-tax prices on emissions or energy products have evolved between 2021 and 2023.

The report covers 79 countries, together accountable for about 82 percent of global greenhouse gas (GHG) emissions.

The finding are based on tax rates as at April 1, 2023, while emissions trading schemes implemented throughout 2023 are also included.

The report notes fuel excise taxes, which implicitly price carbon, declined after the energy crisis, while there has been an increase in the development of emissions trading systems.

Although the coverage of global greenhouse gas emissions by pricing systems stalled at 42 percent between 2021 and 2023, governments are preparing for higher carbon prices by expanding existing mechanisms or introducing new ones, the report says. Some are also considering cross-border effects and new policies, such as border carbon adjustments.

The report estimates that with 15 new carbon pricing schemes currently under development – mostly emissions trading schemes (ETSs) – coverage of emissions by an ETS or a carbon tax will rise from 27 percent to 34 percent over the next five years, bringing total coverage close to 50 percent of GHG emissions across the 79 economies.

"The recent energy crisis has driven carbon and energy prices downwards. However, looking ahead, we see governments preparing for more ambitious climate action. And as we approach 2030, the expansion of existing carbon mitigation mechanisms and the introduction of new ones offer tremendous opportunity for progress towards our shared objectives," OECD Secretary-General Mathias Cormann said.

The report, presented during COP29 on November 14, 2024, measures carbon prices using the Net Effective Carbon Rates indicator, which is the sum of four components: specific taxes on fossil fuels, carbon taxes, prices of tradeable emission permits, less subsidies on fossil fuels. All four components change the price signal for carbon emissions. The report also measures energy rates through the Net Effective Energy rate that additionally includes electricity taxes and subsidies that apply to energy use.