Credible and consistent carbon pricing must be the cornerstone of government actions to tackle climate change, according to a new OECD report.
Releasing the report Climate and carbon: Aligning prices and policies during a Lecture organised jointly with the London School of Economics, OECD Secretary-General Angel Gurría said that a transformation of the global energy system is needed if countries hope to limit climate change to a 2ºC temperature increase from pre-industrial levels, as agreed by the global community. He called for a coherent approach to carbon pricing, to ensure that price signals sent to consumers, producers and investors alike are consistent and facilitate the gradual phase-out of fossil fuel emissions. He also questioned how much impact existing climate policies can have when countries around the world continue to subsidise the exploration, production and use of fossil fuels.
“Whatever policy mix we put in place, it has to lead to the complete elimination of emissions to the atmosphere from fossil fuels in the second half of the century,” Mr Gurría said. “We don’t need to see zero net emissions tomorrow, but we will need to be on the pathway.”
The report says governments need to ensure that carbon pricing is sufficient to achieve climate goals and that other policies are well-aligned with these goals. With international negotiations getting under way for a new climate agreement in 2015, every government needs to review its policy settings and rigorously assess if their overall impact helps climate action or hinders it.
“Cherry-picking a few easy policy measures is not enough,” Mr Gurría said. “There has to be progress on every front, but notably with respect to carbon pricing, and we don’t have any time to waste. Unlike the financial crisis, we do not have a ‘climate bailout’ option up our sleeves.”
The OECD report says that extending and improving the use of carbon taxes and emissions trading schemes is a necessary first step. Governments also need to reform the estimated USD 55-90 billion of support provided each year to fossil fuel exploration, production and consumption in OECD countries and the USD 523 billion in fuel and energy subsidies in developing countries. While subsidies for consumers are often put in place for social reasons, they are usually poorly targeted, expensive and ultimately undermine climate policy action as well.
The OECD identifies key elements for developing credible, stable and sustainable carbon pricing mechanisms that can underpin investments in new technologies, as well as in the infrastructure needed to achieve a zero net emission future. Among the measures analysed are policy instruments that price every tonne of CO2 emitted, and other policies that put an implicit price on emissions and cost-effectively spur innovation. The resulting policy package should increase incentives for consumers, producers and investors alike into making energy-efficient choices consistent with a zero carbon trajectory.