Contributed by Robert Lyman © 2017
Robert Lyman is an Ottawa energy policy consultant, former public servant of 27 years and a diplomat for 10 years prior to that.
The Institute for Climate Economics (I4CE) is a think tank based in Paris that is funded by the French Caisse de Depots, the French Development Agency and Morocco’s Caisse de Depots et Gestion. In October 2017, it published an article summarizing the results of its study of the use of carbon prices in the world. The article, entitled Global panorama of carbon prices in 2017, can be found here:
What Are Carbon Prices?
Carbon prices are the extra charges imposed on users of fossil fuels as disincentives to use these fuels, in theory to reduce greenhouse gas (GHG) emissions and mitigate the effects of (allegedly) human induced global warming. Carbon pricing results usually from either the imposition by governments of carbon taxes with specified rates per tonne of carbon dioxide or from the implementation of regulatory caps on greenhouse gas (GHG) emissions and the establishment of markets through which the value of permits to emit can be determined through commercial trading. The latter are referred to as Emissions Trading Schemes (ETS).
What did the article cover?
The I4CE article provided a world survey indicating which countries and sub-national jurisdictions had implemented carbon pricing regimes, the type of regimes chosen, the sectors covered, the pricing levels, the revenues collected and the use of the revenues. The results are quite informative for those who study and debate the use of carbon pricing in Canada.
Here are some of the highlights of the article:
- As of September 1 2017, more than 40 countries and 25 provinces or cities had adopted carbon pricing policies. These jurisdictions account for around 25% of global GHG emissions.
- A world map showing which countries and regions have implemented carbon pricing makes it clear that the vast majority of the current regimes are in Europe and North America. While China has implemented various regimes in its provinces, the carbon values there are very low (typically Cdn $3.50 to $8.00 per tonne) and are primarily intended to improve local air quality by reducing coal consumption.
- The revenues received by governments from carbon pricing totaled about U.S. $26 billion (Cdn $33.3 billion) in 2015 and declined to U.S. $22 billion (Cdn $28 billion) in 2016. The decline was due to the reduction in prices in jurisdictions using ETS schemes in Europe, California and Quebec.
- In 2016, two thirds of carbon pricing revenues come from carbon taxes.
- The range in carbon prices is very wide, with the lowest noted being less than one euro per tonne in Poland and two euros (Cdn $3.20) per tonne in some Chinese provinces and the highest being 96 euros (Cdn $154) per tonne in Sweden. More than 75% of emissions regulated are covered by a carbon price below 10 euros (Cdn $16) per tonne.
- The article lamented the fact that the carbon prices in 2017 were “not aligned with the costs of necessary climate action in order to stay on the 2 degree C. trajectory” blessed by the United Nations at the COP21 conference in December 2015. It referred to the recommendations of a commission led by Stern and Stiglitz that carbon prices be raised to U.S. $40 (Cdn $63) and U.S. $80 (Cdn $102) per tonne by 2020, and between U.S. $50 (Cdn $64) and U.S. $100 (Cdn $128) per tonne by 2030.
The Uses of Carbon Revenues
One of the central controversies in Canada concerning the use of carbon pricing concerns how the governments receiving the revenues will use them. If the purpose is primarily or entirely to use market-based incentives as a more economically efficient way to stimulate reduced GHG emissions, theory suggests that revenues should all be recycled back into the economy through some reduction in the rates of other generally applied taxes like income taxes or sales taxes. Environmentalists (and the industries that benefit) may argue that some portion of the revenues should go directly to subsidizing emission reduction measures. Carbon tax opponents, in contrast, cite the risk that governments will, in fact, simply add the revenues from carbon prices to the general budget and use them to fund various political initiatives that have little or nothing to do with environmental objectives.
The I4CE article contains some interesting information using data for fiscal year 2013-2014.
- More than 60% of the revenues received by governments from carbon pricing went to members of the European Union.
- On the global scale, only 29% of revenues were recycled into the economy in the form of tax exemptions.
- 34% of the revenues were used to subsidize projects that would reduce GHG emissions.
- 37%, the largest share, were allocated to the general budget.