Following the recently published IPCC 5thAssesment on climate change, OECD released the Report “Climate and carbon: Aligning prices and policies” during a Lecture organised jointly with the London School of Economics.
The Report 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. 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.
According to the OECD Report, extending and improving the use of carbon taxes and emissions trading schemes is a necessary first step. Also investments and subsidies have an important role in achieving climate change goals. Governments need to reform the estimated $55-90 billion of support provided each year to fossil fuel exploration, production and consumption in OECD countries and the $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.
During the lecture, 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.
According to Mr Gurria, “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”; “We don’t need to see zero net emissions tomorrow, but we will need to be on the pathway.” “…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 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.
October 9th 2013