This chapter defines effective carbon rates and provides context. Effective carbon rates are the total price that applies to carbon dioxide emissions from energy use as a result of market-based instruments (fuel excise taxes, carbon taxes and carbon emission permit prices). The report measures effective carbon rates from energy use for 44 OECD and G20 countries, which together account for about 80% of global carbon emissions from energy use.
Effective Carbon Rates 2021
Pricing Carbon Emissions through Taxes and Emissions Trading
OECD Series on Carbon Pricing and Energy Taxation
1. Introduction
Abstract
The Effective Carbon Rates (ECRs) database is the most detailed and most comprehensive account currently available of how 44 OECD and G20 countries – responsible for around 80% of global carbon emissions – price carbon emissions from energy use. The ECR is the sum of taxes and tradeable permits that effectively put a price on carbon emissions.
The 2021 edition of Effective Carbon Rates shows how the 44 countries priced carbon emissions in 2012, 2015 and 2018 and evaluates progress over this period. It also shows how the three different components of the ECR – fuel excise taxes, carbon taxes and tradeable carbon emission permits (see Figure 1.1) – contribute to the overall carbon price. Irrespective of the policy objectives for their introduction, all three components of the ECR are defined over a tax base that either is CO2-emissions or is directly proportional to them (e.g., litres of diesel, or tonnes of coal). The three components each make low- and zero- carbon energy more competitive by increasing the price of high-carbon alternatives, encouraging energy users to curtail their use of high carbon energy and switch to low- or zero-carbon options.
Figure 1.1. Components of the Effective Carbon Rate
Data on emission permit prices and their coverage is originally gathered for the Effective Carbon Rates database and data on carbon taxes and fuel excise taxes is taken from the Taxing Energy Use database (OECD, 2019[1]). The first publication of Effective Carbon Rates describes the methodology for matching permit prices with taxes (OECD, 2016[2]).
In line with previous editions of Taxing Energy Use (OECD, 2013[3]; OECD, 2015[4]; OECD, 2018[5]; OECD, 2019[1]), as well as Effective Carbon Rates (OECD, 2016[2]; OECD, 2018[6]) this publication reports results including emissions from the combustion of biomass. Results excluding emissions from the combustion of biomass are available via the Effective Carbon Rates database on OECD.STAT. Annex 3.A of Effective Carbon Rates 2018 (OECD, 2018[6]) discusses the implications of the combustion approach and considers evidence on lifecycle emissions of biofuels. It also discusses why emission bases from Taxing Energy Use and Effective Carbon Rates are not directly comparable with UNFCCC inventories.
References
[1] OECD (2019), Taxing Energy Use 2019: Using Taxes for Climate Action, OECD Publishing, Paris, https://dx.doi.org/10.1787/058ca239-en.
[6] OECD (2018), Effective Carbon Rates 2018. Pricing Carbon Emissions Through Taxes and Emissions Trading, OECD Publishing, Paris, https://doi.org/10.1787/9789264305304-en.
[5] OECD (2018), Taxing Energy Use 2018: Companion to the Taxing Energy Use Database, OECD Publishing, Paris.
[2] OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264260115-en.
[4] OECD (2015), Taxing Energy Use 2015: OECD and Selected Partner Economies, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264232334-en.
[3] OECD (2013), Taxing Energy Use: A Graphical Analysis, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264183933-en.