The Role of Carbon Pricing in Transforming Pathways to Reach Net Zero Emissions (OECD Working Paper)

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Introduction: To achieve the ambitious goal of limiting global warming to 1.5°C as outlined in the Paris Agreement, transformative changes in greenhouse gas (GHG) emission pathways are imperative. Despite progress in national climate policies, existing measures are insufficient. Carbon pricing emerges as a potential tool, but its efficacy remains limited.

Challenges and Opportunities

  • Insufficient Action: Despite the proliferation of carbon pricing schemes globally, they cover only 23% of GHG emissions, with prices often below effective levels.
  • Demand-Side Shifts: Comprehensive policies addressing both supply and demand sides are crucial. Carbon pricing can incentivize shifts in consumption patterns towards low-carbon alternatives.
  • Sectoral Impacts: Carbon pricing alone hasn't driven sufficient emission reductions, but evidence shows positive impacts when combined with other policies, especially in the electricity sector.
  • Just Transition: Transitioning to net zero emissions may have short-term social impacts. Proactive measures are necessary to support affected communities and workers.

Policy Recommendations

  • Comprehensive Policy Packages: Integrate carbon pricing with other measures to address both supply and demand sides, ensuring a just transition.
  • Sequenced Deployment: Deploy supportive policies before carbon pricing to facilitate the adoption of low-carbon alternatives, then introduce carbon pricing to discourage high-emission activities.
  • International Collaboration: Foster cooperation to enhance the effectiveness and efficiency of carbon pricing schemes globally.
  • Emissions Pricing in Food Systems: Explore the potential of emissions pricing to reduce GHG emissions in food systems, considering methodological, technical, and political challenges.