Perhaps the OECD is suffering relevance deprivation syndrome. It jumped on the climate change bandwagon some time back, massively growing its environment department. Now it wants to ignore the election result in Australia and cite Australia as a leading example of a country that has successfully introduced a carbon tax (although he call it an emissions trading scheme)!
With the release of the IPCC’s Fifth Assessment Report last week, the OECD felt the need to release its own report, Climate and carbon: Aligning prices and policies. Its headline
Countries should make carbon pricing the cornerstone of climate policy, says OECD
In releasing the report, the OECD Secretary-General Angel Gurría said
Many countries have announced emission reduction targets for 2020 and even mid-century, some of them ambitious ones. Even more is needed: UNEP estimates that the pledges for 2020 get us only between a quarter and half way to where we need to be to keep the 2 degree goal within reach. And pledges need to be supported by credible policies that will achieve them. Thus, an awful lot of progress will need to be made over the next two or three decades starting immediately – not sometime after 2020.
As if anyone seriously believes that simply by reducing CO2 emissions the temperature of the globe can be controlled. This is the type of hubris that Canute warned about in the 11th century.
Gurría the argues that the most important measure is a carbon tax
In our view, any policy response to climate change by any country must have at its core a plan to steadily make carbon emissions more expensive while, at the same time, judiciously giving non-fossil energy and energy efficiency an advantage at the margin. This is fundamental.
What do we know about carbon pricing? There is a strong consensus that putting an explicit price on carbon is necessary for tackling climate change, either through a carbon tax or through an emissions trading scheme. The OECD is today releasing a report, Climate and Carbon: Aligning Prices and Policies, that summarises our latest work on the issue and provides an accessible guide on how to tackle carbon pricing.
The evidence is that politicians favour almost anything other than a tax. If it’s called a tax it seems to run into twice the political headwind as any other policy instrument. Partly as a result of this, emissions trading schemes (ETS) are becoming widespread. The EU ETS is the oldest and best known but similar (and in some cases more comprehensive) schemes are now in existence in California, nine states in the North-Eastern USA, Quebec, Australia and New Zealand. There are also pilot schemes being trialled in seven Chinese cities and provinces that cover over 20% of China’s emissions. These are important, but piecemeal, efforts. While the “flexibility” of ETSs has made them a politically-attractive option compared with carbon taxes, getting them legislated has involved all sorts of compromises. As a result, more needs to be done to improve their design and implementation to make them as effective as possible.
It is important to note that not all governments have shied away from explicit carbon taxes. Since Sweden introduced its carbon tax in 1991, an additional nine OECD countries have followed suit. We have learned a lot from these experiences on how to introduce carbon taxes. For example, introducing the taxes incrementally over time can allow households and businesses to make smooth, efficient adjustments. The implementation of British Columbia’s carbon tax is as near as we have to a textbook case, with wide coverage across sectors and a steady increase in the rate, from CAD 5 to CAD 30 per tonne over a period of five years.
But carbon pricing doesn’t stop there. There are many ways in which carbon is priced implicitly. For instance, there are many taxes on different forms of energy that can to some extent reflect a price on carbon, even if carbon reduction was not the original target of the tax. These vary significantly across countries. Our database of environmental taxes shows that energy and motor vehicle taxes in countries such as Denmark, Brazil, and Turkey amount to as much as 3.5% of GDP, whereas they are less than 1% of GDP in the US. In Mexico, energy subsidies outweigh the taxes.
Has he noticed that there has been a change of Government in Australia with the specific policy to repeal Australia’s carbon tax? And with the numbers in both houses to achieve that objective?
Once again the OECD is proving its irrelevance, while playing politics.