The threat of climate change requires decisive action across virtually all parts of our economies and societies. Although the world is not currently on track to meet its goal of maintaining the global temperature increase below 2°C, a range of policies have been implemented, with mixed success. Economic theory indicates that a price on CO2 emissions from fossil fuels and other sources is needed if countries are to minimise the overall cost of reducing their emissions. At present, fossil fuels are priced and taxed at levels that differ vastly across fuels, uses, and countries, indicating areas of possible improvements. Likewise, some policy instruments carry a much higher cost of CO2 reduction than others, often a sign of economic inefficiency. The Environment Directorate will present latest results in this area as well as possible new work on the experience with carbon pricing legislation. By Simon Upton, Director, and Nils Axel Braathen, Principal Administrator, Environment Directorate, OECD

1. PUTTING A PRICE ON CO2 EMISSIONS
Simon Upton, Director, Environment Directorate
Nils Axel Braathen, Principal Administrator, Environment Directorate
5 February 2014

2. Revenues from environmentally related taxes
In per cent of GDP, Selected countries, 2012
5
4
Other
Motor vehicles
% of GDP
3
Energy
2
1
0
-1
2
-2
* 2011 figures
** 2010 figure

3. Taxing Energy Use
OECD published the book Taxing Energy Use: A
Graphical Analysis in 2013.
First systematic comparison of the taxation of all
energy use across & within OECD countries.
Considers taxes on fuels as effective taxes on
energy & on carbon emissions, highlighting the
price signals sent by taxes to different fuels & fuel
uses.
Provides a graphical & statistical profile of the
structure of energy use & taxation in each of the
OECD countries.
Uses the underlying data to develop cross-OECD
comparisons of effective tax rates on different
users and sources of energy.
www.oecd.org/tax/taxpolicy/taxingenergyuse.htm
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4. Taxation of energy in the OECD area:
A carbon content basis
Source: OECD (2013), Taxing Energy Use: A Graphical Analysis.
4

5. Energy tax rates, EUR per tonne CO2
Effective tax rate (EUR per tonne CO2)
500
450
SWE
400
350
300
DEU
FRA
250
JPN
200
150
AUS
100
50
USA
0
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Source: OECD (2013),Taxing Energy Use: A Graphical Analysis
0.9
1
5

6. Support to fossil fuels in OECD countries by year
By type of fuel
USD billion (current)
90
By measure
USD billion (current)
90
80
80
70
70
60
60
50
40
50
Petroleum, 71% (2011)
40
30
30
20
10
Consumer support, 80% (2011)
20
Coal, 12% (2011)
10
Natural gas, 18 % (2011)
0
2005 2006 2007 2008 2009 2010
2011
Producer support, 16% (2011)
General services support
0
2005 2006 2007 2008 2009 2010
Note: Based on arithmetic sum of the individual support measures identified for all 34 OECD member
countries. It includes the value of tax relief measured under each jurisdiction’s benchmark treatment. The
estimates do not account for interactions that may occur if multiple measures were considered
simultaneously.
Source: OECD (2013), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels
2013, OECD Publishing.
2011
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7. EFFECTIVE CARBON PRICES

8. Background and introduction
OECD recently published the book Effective
Carbon Prices.
The book looks at the amount of GHG abatement
different policy instruments contribute to; the
costs to society of achieving this abatement;
and, hence, the costs to society per tonne of
CO2eq abated.
Covers electricity generation, road transport, pulp
& paper, cement, as well as households’
domestic energy use in 15 Countries.
Keep in mind: A high effective carbon price can
stem from an ambitious policy – or from an
inefficient policy.
www.oecd.org/env/toolsevaluation/carbon-prices.htm
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9. Electricity generation
The highest costs per tonne of CO2 abated are associated with
various capital subsidies (for renewables, energy-efficient
appliances, etc.) and feed-in tariff system – both in terms of the
averages calculated and the maximum values observed.
The lowest costs per tonne were found for trading systems.
The costs were particularly low when the trading systems
addressed the environmental externality as directly as possible –
like with a trading system for GHG emission allowances (rather
than indirectly, such as e.g. “tradable renewables certificates”).
This confirms “textbook suggestions” that trading systems (and
broad-based carbon taxes) are the most economically efficient
policy tools to mitigate climate change.
9

10. 2010 EUR per tonne of CO2 abated
Average effective carbon prices in the electricity
sector, by instrument category, EUR2010 per tonne CO2
900
800
700
Min
Max
Simple average
600
500
400
300
200
100
0
10

11. Effective carbon prices in the different sectors
covered, by country, EUR2010 per tonne CO2
250
2010 EUR per tonne CO2 abated
200
Electricity generation
Road transport
Pulp & paper
Cement
Households
150
100
50
0
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12. To sum up …
There are clear differences in effective carbon prices:
within a given sector, across the countries covered;
across the different sectors, within each country;
across the different instrument types, across all the countries covered.
The study demonstrates clearly that taxes and emission trading
systems are much more cost-effective than other policy instruments
that countries apply.
Many of the other instruments countries apply to limit GHG
emissions (feed-in tariffs and other subsidies to
renewables, various subsidies for low-emission product
alternatives, etc.) are very costly per tonne of CO2eq abated.
It will be very difficult to reach more ambitious, and urgently
needed, abatement objectives if countries continue to focus their
efforts on such inefficient instruments.
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13. Further information
www.oecd.org/env/policies/database
www.oecd.org/env/taxes
www.oecd.org/env/tools-evaluation/carbon-prices.htm
www.oecd.org/env/taxingenergyuse.htm
www.oecd.org/site/tadffss/
www.oecd.org/iea-oecd-ffss
Nils-Axel.Braathen@oecd.org
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