In the past few decades, heat waves have become hotter, storms more severe, and droughts drier. Extreme weather events occur more often and are more severe because temperatures are rising. The increase in temperatures is the consequence of greenhouse gas emissions, including the carbon emissions from fuel combustion. These gases create a greenhouse effect by which the planet overheats, slowly but constantly. We fuel climate change by burning high carbon fuels.

Left unchecked, climate change will have dire consequences, much worse than what we are beginning to experience. However, by reducing greenhouse gas emissions decisively and phasing them out eventually, countries can stabilise the climate and manage its impact on economies, improving at the same time air and water quality. There are many ways to achieve this, for example renewable energy, green hydrogen and zero-carbon building material, and being more mindful with carbon-intensive activities.

Carbon pricing encourages the required shift of production and consumption decisions towards low and zero carbon options very effectively. Based on data from earlier OECD publications on Taxing Energy Use and Effective Carbon Rates a well-published academic paper finds that an increase of the ECR by EUR 10 per tonne CO₂ reduces emission by 7.3% on average over time. Recent increases in the ECR in the United Kingdom´s electricity sector, as well as in the European Union Emissions Trading System (EU ETS) were also accompanied by a strong decline in emissions. There are also other policy instruments, but carbon pricing is very important, because it creates strong incentives by itself and because it increases coherence across climate policy packages.

This study highlights how 44 OECD and G20 countries, which together account for about 80% of global carbon emissions from energy use, price carbon emissions from energy use. Specifically, it describes Effective carbon rates (ECRs), which summarise how countries price carbon through fuel excise taxes, carbon taxes and emissions trading systems.

In each of the 44 countries, the ECRs are measured for six economic sectors: industry, electricity generation, residential and commercial energy use, road transport, off-road transport, and agriculture and fisheries. The report highlights the structure of effective carbon rates across countries and sectors in 2018 and discusses change compared to 2012 and 2015. Detailed information on ECRs by country and sector for the years 2018, 2015 and 2012 is available on OECD.STAT. The report also provides an assessment of major developments since 2018, namely the impact of more ambitious emissions trading in China and the EU.

The report discusses progress with carbon pricing against three benchmarks. The first benchmark, EUR 30 per tonne of CO₂, is an historic low-end price benchmark of carbon costs and a minimum price level to start triggering meaningful abatement efforts. The second benchmark, EUR 60 per tonne of CO₂, is a forward looking 2030 low-end and mid-range 2020 benchmark. The third benchmark, EUR 120 per tonne of CO₂, is a central estimate of the carbon costs in 2030. For the presentation of key results, the report focuses on the EUR 60 per tonne CO₂ benchmark. The Effective Carbon Rates database on OECD.STAT shows results for all three carbon pricing benchmarks.

The Carbon Pricing Score (CPS) answers the question of how far countries have attained the goal of pricing all energy related carbon emissions at the three benchmarks for carbon costs or more. The more progress a country has made towards the relevant benchmark value, the higher the CPS. For example, a CPS of 100% against a EUR 60 per tonne CO₂ benchmark (CPS₆₀) means that a country or the group of countries prices all carbon emissions from energy use at EUR 60 or more. A CPS of 0% means that the country prices no emissions at all. An intermediate CPS between 0% and 100% means that some emissions are priced, but that not all emissions are priced at a level that equals or exceeds the benchmark.