Analysts said how carbon prices depend on the country's wealth shutterstock

Analysts said how carbon prices depend on the country's wealth

Katerina Belousova

Convergence of prices, coverage and benefits between countries at different stages of economic development is unlikely

Carbon pricing schemes around the world in the form of taxes or emissions trading are most common in high-income countries.

Experts on CRU Sustainability have analyzed carbon pricing schemes in high, middle and low income countries, reports СRU

Carbon pricing schemes are generally considered to be one of the most effective ways to mitigate the effects of climate change, as they set a clear price for emissions.

In addition to differences between countries, there are also significant differences between regions in terms of carbon prices, economic activity covered and benefits offered.

The schemes use market-based mechanisms to reduce carbon emissions

Unlike most other climate change mitigation strategies, these schemes are market-based and use price signals to influence the behavior of market participants and ultimately the results. Carbon pricing schemes achieve this by setting a clear price for carbon emissions.

Carbon pricing schemes are either in the form of carbon taxes or emissions trading schemes (ETS). In the case of carbon taxes, policies set the price of carbon emissions and then allow those who generate emissions to decide how much carbon they want to emit. These taxes focus on changing behavior, not on generating more revenue for the government. In the case of emissions trading schemes, policies limit the allowable amount of carbon emissions over a period of time and then allow the market to find a price that matches supply and demand.

Both approaches have their advantages and disadvantages. Thus, the introduction of a carbon tax is easier than the creation of ETS, which requires a special trading platform, and also provide a stable price. The ETS allows policymakers to directly determine their allowable carbon emissions, thus offering a more direct tool to reduce emissions.

Carbon pricing schemes are common in high-income countries, but interest is growing in middle-income countries

CRU Sustainability analyzed nearly 200 countries, 53 of which are classified by the UN as highly profitable; just over 100 as middle income, and 26 as low income. 40 high-income countries and 20 middle-income countries have some form of carbon pricing.

Of the 40 high-income countries, four have only a carbon tax, 18 have only an ETS, and almost half have a combination of both. In the United States and Canada, states and provinces have the power to establish regional carbon policies.

The prevalence of carbon pricing schemes in different countries reflects different domestic policy priorities and financial opportunities, according to their level of economic development, as well as broader "fair share" considerations of the contribution they need to make to climate change mitigation.

Carbon pricing schemes vary widely, making direct comparisons difficult

Analysts also found that carbon pricing schemes can vary widely in price, coverage, availability of free surcharges and benefits that determine the overall scope and price of a scheme. In this case, the actual price faced by the issuer is often much lower than the "main" price due to free surcharges or exceptions.

Differences in headline carbon prices

Carbon prices vary greatly from country to country. Thus, the EU ETS has a current carbon price of ~ 90 euros / t CO2, the Swedish tax ~ 110 euros / t CO2, and Kazakhstan and Chile - ~ 0.93 € / tCO2 and ~ € 6 / tCO2 respectively.

Countries also differ in terms of future ambitions: Canada, Norway and the Netherlands seek to achieve domestic carbon prices of ~ € 130 / tCO2, ~ € 200 / tCO2 and ~ € 125 / tCO2 by 2030, respectively, while many others have not stated plans to increase.

Carbon pricing schemes also differ in terms of coverage

In most cases, carbon pricing schemes cover only emissions from electricity and industrial production, less often transport and housing. Land use, in particular agriculture, goes beyond all existing schemes.

For EU Member States, Iceland, Liechtenstein and Norway, domestic carbon taxes typically cover sectors not covered by the EU ETS.

Exceptions to avoid carbon leakage

The scope of any existing carbon pricing scheme is also determined by the exceptions provided. For example, very small pollutants may not have to pay carbon tax or participate in the ETS.

Exceptions are aimed at preventing abortions from moving to other jurisdictions with lower carbon prices. An important type of exemption in the ETS is free allowances, which are often provided on the basis of specific technical benchmarks or historical emission levels to cover at least part of the emissions. They are often provided during the phased introduction of ETS to mitigate the impact of price shocks on businesses. They are then removed after the ETS is created.

Carbon pricing schemes may also differ in the method of offsetting carbon emissions. In Colombia, for example, the existing carbon tax can be avoided by buying domestic carbon offsets, which have been criticized as low quality.

Understanding the cost of schemes

The narrower the coverage and the greater the exceptions, the lower the effective average carbon price in the country. If an enterprise is exempt from benefits, its effective carbon price may be much lower than the headline price. And if the company finds itself in a sector that is covered and not exempted, its effective carbon price will be the same as the headline price.

The material noted that no two schemes are the same, important details.

It is planned that carbon pricing schemes will become more popular and more ambitious

Carbon pricing schemes are generally considered to be one of the most effective ways to reduce carbon emissions. In countries with such schemes, there is a gradual increase in ambition, for example, by raising prices, expanding coverage and reducing benefits.

The material noted that convergence of prices, coverage and benefits between countries at different stages of economic development is unlikely. Most high-income countries have higher CO2 emissions, as well as the financial capacity and resources to achieve more ambitious carbon targets than middle- and low-income countries. In particular, for low-income countries, adaptation to climate change will remain a higher priority than mitigation.

We will remind, European business requires realistic terms and ways green transition.

As EcoPoliticа reported earlier, global carbon pricing in 2021 brought a record income.

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