The number of adopted national climate policies and their stringency slowed in 2022

In 2022, the growth rate of the sum of national climate action as measured by the CAPMF slowed down in the OECD and OECD partner countries (Figure 32). The total number of adopted policies expanded by only 1%, while the stringency of policies remained roughly constant. By contrast, between 2000 and 2021, overall climate action as measured by the CAPMF4 increased by an average of 10% a year (for more details see Annex Figure I.3).

It is important to consider geopolitical and macroeconomic shocks when assessing climate policy. On the one hand, the recent energy crisis triggered countries to ramp up fossil fuel support to record levels while postponing planned climate actions such as carbon pricing and the phasing out of fossil fuel infrastructure. With the exception of the implementation of the Inflation Reduction Act (IRA) in the United States – although not considered in the CAPMF – the fiscal space of most governments to provide additional support to low‑carbon technologies became increasingly limited due to increased government spending on recovery packages in response to the COVID-19 pandemic and rising interest rates to curb inflation (OECD, 2021[47]).5 Some policies (e.g. minimum energy performance standards, energy labels, air emissions standards for coal power plants) have already been widely adopted, further limiting the space for new policy adoption.

On the other hand, the energy crisis triggered more climate action. Concerns over energy security and reliance on fossil fuels motivated some countries to adopt more ambitious targets on renewables and energy efficiency. These targets and commitments, as well as some types of policy measures (e.g. support to green investment) are not yet fully captured by the CAPMF. Further developments of the CAPMF will reveal whether countries underpin these targets by appropriate climate policies in the coming years, and if the aggregate trends on climate action improve.

Policy coverage and policy stringency are not necessarily indicative of policy effectiveness in reducing GHG emissions. However, the trend observed by the CAPMF in 2022 may pose a risk to countries’ achieving their mitigation commitments. Stronger climate action, as measured by the CAPMF, points to steeper emissions reductions (Nachtigall et al., 2022[45]). Nevertheless, CAPMF data shows that all countries still have multiple options for strengthening their climate action by increasing the stringency of existing policies or adopting new policies that are currently not widely used (e.g. carbon pricing in the building and transport sector, bans and phase-outs of fossil fuel extraction, fossil fuel-based heating and transportation modes).

 Climate action is increasingly diverging across countries over time

Climate action is increasingly diverging between OECD and OECD partner countries (Figure 33). Some OECD countries had already stronger policies in place and accelerated climate action faster than other countries. For example, European Union countries subject to EU regulation had already adopted a wide range of climate policies and have continued expanding climate action at a fast pace. While the trend of divergence can be observed between 1990 and 2020, it accelerated markedly in 2021, though not in 2022.

Diverging climate action reinforces the need for more international co-ordination and co-operation on climate action, notably in times of the current geopolitical challenges. Achieving the Paris Agreement long‑term temperature goal requires improved institutional, technical, and human capacity, and scale-up of finance for climate action. Moreover, in an interconnected world, diverging climate action across countries may affect competitiveness and trigger carbon leakage, therefore limiting the effectiveness of increased climate action (Nachtigall et al., 2021[48]). Some countries, notably the European Union, started to implement safeguards such as border carbon adjustment to reduce the risk of carbon leakage and mitigate negative competitiveness effects (OECD, 2023[49]).

 Climate action in international climate co-operation policies and cross-sectoral policies expanded marginally, but slowed down for sectoral policies

Climate action in international climate co-operation policies6 and cross-sectoral policies7 continued its upward trend in 2022, though at a significantly slower pace compared with previous years (Figure 34). The increase in international climate action and cross-sectoral action was stronger in OECD partner countries than in OECD countries (Figure I.4 and Figure I.5). The increase in international climate action observed after 2020 can mostly be attributed to i) the Arrangement on Officially Supported Export Credits, in which participants agreed to end the support for unabated coal power plants (OECD, 2023[50]); ii) a joint commitment forged at COP26 in 2021 that committed signatories to “align international public support towards the clean energy transition and out of unabated fossil fuels” (UK Government, 2021[51]); and iii) the launch of the pilot phase of CORSIA. Climate action in cross-sectoral policies principally increased due to enhanced NDCs and net-zero targets in some countries.

Climate action in sectoral policies8 slowed down in 2022. The slight increase in climate action in the building sector was offset by decreases in climate action in the electricity and industry sectors (Figure 35). This was mostly due to a decrease in governments holding renewable energy auctions, postponed phase‑out dates of coal power plants, and carbon tax breaks for energy‑intensive industries in view of the energy crisis. Climate action in the transport sector – the sector with least progress on climate action between 2010 and 2021 – halted in 2022.

Sectoral policies are key levers to reduce sector-specific GHG emissions. Most countries emphasise the importance of sectoral policies in their NDCs. For example, 92% and 83% of countries declare that action in the electricity and transport sectors respectively are key mitigation strategies to reach their NDCs, whereas only 78% report the same for cross-sectoral policies (UNFCCC, 2022[52]). However, a slowdown in climate action in sectoral policies is observed by the CAPMF in the two sectors that account for the highest shares of GHG emissions in OECD and OECD partner countries: electricity (36%) and industry (22%) (Chapter 1).

 The relative importance of market-based instruments decreased in the last decade

As explained above, each country needs to tailor its policy approach and policy mix to its own specific circumstances. All types of climate actions and policies have a role to play in reducing emissions and achieving the long-term temperature goal of the Paris Agreement.

• Market-based instruments (MBIs), such as subsidies and carbon pricing, can cause relative prices to shift the investment, production and consumption decisions towards low-carbon alternatives. Carbon pricing schemes are also a source of revenues to finance climate action.

• Non-market-based instruments (nMBIs), such as standards and information instruments, are instrumental to mainstream advanced low-carbon technologies, provide climate-relevant information to stakeholders, steer broad, bottom-up support for climate measures, and develop infrastructure for low-carbon alternatives.

• Targets (e.g., net-zero targets and NDCs), international co-operation, governance and climate data are key enabling conditions for effective mitigation. While these actions may not have a direct material effect on emissions, they provide the policy framework with mid- and long-term signals for all stakeholders. They also create the institutional capacity to effectively implement policies, enable the tracking of progress, and identify key emissions drivers.

Climate action on MBIs slowed down significantly between 2010 and 2022 (Figure 36). While action on nMBIs and ‘Targets, governance and climate data’ increased by 88% and almost 300% respectively, action on MBI only increased by 43% between 2010 and 2022. While the number of adopted MBIs increased by 33% between 2010 and 2022, the number of adopted nMBIs as well as policies related to ‘Targets, governance and climate data’ increased by 66% and 250% respectively.

In 2022, overall climate action in market-based instruments slowed (Figure 36). This is the result of two opposing trends: (i) the expansion and increase in stringency of carbon pricing (e.g. permit prices in most ETS increased, partly driven by more stringent emissions caps set by countries), and (ii) backtracking on other MBI policies, notably related to fossil fuel support (see below). Out of nine countries with preliminary data, four (France, Italy, Portugal, and Slovakia) saw a reduction in energy related tax revenue in 2022, and five saw an increase (Denmark, Estonia, Luxembourg, Norway, and Sweden) (OECD, 2023[53]).

These findings suggest that the relative importance of MBIs in countries’ policy mixes has decreased, despite their potential to incentivise cost-effective emissions reductions. A possible explanation is the lack of public acceptability, notably for carbon pricing (Jenkins, 2014[54]) (Dechezleprêtre et al., 2022[55]). Carbon pricing design that contemplates revenue recycling or other mechanisms to deal with public resistance can better compensate vulnerable households and help boost public support for these approaches. Indeed, countries use different revenue recycling approaches (Nachtigall, Ellis and Errendal, 2022[56]).

 Climate action of non-market-based instruments increased marginally in 2022

Countries marginally increased the adoption and stringency of non-market-based instruments in 2022 (Figure 40). There is still plenty of scope for them to adopt new measures or strengthen existing ones, however. Information instruments (e.g., labels for appliances and fuel efficiency for passenger cars) and some regulatory instruments such as minimum energy performance standards (MEPS) for appliances, air pollution standards for coal-power plants, and fuel efficiency standards for passenger cars have been implemented since the 1990s. Other standards (e.g. building energy codes and MEPS for electric motors) are more recent, but not all OECD and OECD partner countries had implemented these standards in 2022.

While performance standards were adopted in most countries between the 1990s and the 2010s, their stringency can be further increased to support the uptake of more advanced low-carbon technologies. For example, in 2023 the European Union plans to increase the required efficiency level of electric motors to International Efficiency level IV – the most stringent level that any country has put in place.

 Countries should further strengthen climate governance and climate data

Adoption of targets, governance, international co-ordination and climate data vary widely across climate actions (Figure 42). All OECD and OECD partner countries submitted NDCs and most of them have net‑zero targets in place. All these countries are signatories to the Paris Agreement and most other key international climate treaties.12 Similarly, these countries are part of at least two international initiatives (e.g. Malta, Saudi Arabia) and some up to 38 (e.g. United Kingdom).13 All countries also provide information to the UNFCCC in the form of official documents (e.g. National Communications). However, not all countries provide all mandatory or recommended information, or do so in a timely manner. For example, 13 countries covered by the CAPMF have not yet submitted their long-term low emissions development strategy (LT-LEDS), a key document providing guidance to stakeholders on national plans for reaching long-term targets (Aguilar Jaber et al., 2020[68]).

Climate advisory bodies play a role in supporting climate action through stakeholder involvement and providing key scientific information. As of 2022, only 13 countries had established independent climate advisory bodies, of which 12 are created by law. In 2021 or 2022 some countries, including Australia, Canada and Denmark, stepped up their funding of climate advisory bodies. Switzerland, on the other hand, abolished its advisory body in 2021, though it plans to reinstate a similar entity while mainstreaming institutions to provide climate advice.

Despite the call for countries to ramp up ambition and submit updated (second) NDCs ahead of COP27, only eight countries did so, including Brazil and Korea.14 While most countries submitted their second NDCs in 2020 or 2021, India submitted its second NDC in 2022.

 Climate action and the policy landscape

Monitoring trends in climate action is essential for assessing countries’ efforts. The Climate Action and Policies Measurement Framework, the basis for the analysis presented in this section, provides data on the adoption and stringency of selected relevant climate mitigation actions and policies.

The effectiveness of policies, as well as the choices available to policy makers, must be viewed in the context of the broader policy landscape, however. Some events, conditions, or trends can act as “tailwinds” supporting and facilitating the transition to net zero, such as technological progress, renewable energy prices, or the discovery of critical materials. Others can restrict climate action policy effectiveness by acting as “headwinds” as they hamper the transition or reduce the range of feasible action against climate change, for example falling fossil fuel prices or international conflict.

Without identifying and understanding the full impact of these trends and events, it is difficult to assess the ultimate impact of climate policy on mitigation outcomes. For example, Russia’s war of aggression against Ukraine in 2022 reshuffled the climate policy landscape by disrupting global energy markets. On the one hand, it reduced access to fuels and increased energy insecurity, motivating governments to increase the development of domestic fossil fuel energy resources and supports for fuel consumption. On the other hand, high-energy prices and concerns over long-term fossil fuel supply triggered increased funding for renewable energy sources and energy efficiency actions. The final impacts are yet to be determined.

To better support decision makers' policy choices, IPAC could develop indicators that examine the broader policy landscape, as well as indicators on barriers and opportunities, and above all, on a just transition. This could build on and contribute to work under the OECD’s horizontal project Net Zero+, which explores how governments can build climate and economic resilience while taking into account the broader policy landscape, for example looking at challenges such as skills shortages, the supply of critical minerals, other potential bottlenecks to a rapid and resilient net-zero transition. Furthermore, the OECD has embarked on a major initiative, the Inclusive Forum on Carbon Mitigation Approaches (IFCMA), to both carry out a detailed stocktake of current policy instruments as well as assess their effectiveness. These initiative, as well as complementary indicators, are essential to a complete the picture of countries’ mitigation efforts, and will be the cornerstone of OECD work on climate.