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Carbon emissions are priced too cheap for climate change

In most of the world, 70 percent of emissions are priced at zero.

Steam and smoke over a coal burning power plant in Gelsenkirchen, Germany. CREDIT: AP/Martin Meissner
Steam and smoke over a coal burning power plant in Gelsenkirchen, Germany. CREDIT: AP/Martin Meissner

Most carbon emissions around the world are priced too cheap to reduce greenhouse gas emissions driving global warming, according to an Organisation for Economic Cooperation and Development (OECD) report released Monday.

The report, which analyzed OECD countries responsible for some 80 percent of global carbon dioxide emissions, found a major gap between current carbon pricing policies and what should be the bare minimum estimated cost for carbon given its climate impact.

According to the report, a metric ton of carbon should be priced at least 30 Euros — about $34 — to account for the damage done to the climate. Across the 41 countries the OECD analyzed, some 70 percent of emissions are priced at zero, while less than 5 percent actually meet the 30 Euros per metric ton minimum.

Putting a cost on carbon is a cheap, effective tool to reduce emissions, according to OECD, and is a likely avenue to create economic growth and increase productivity in the short-term.

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Putting a price on carbon forces industries to be more efficient or to develop technologies to keep their carbon costs low. On the other hand, not having a carbon price costs society dearly due to the impacts of increased air pollution and climate change. As it is, countries are not doing enough to make the most polluting industries to pay enough, according to the report.

This comes as only 10 percent of emissions are priced at or above 30 Euros per metric ton, and most of these costs are placed on road transport energy use. Meanwhile, very low carbon prices are found outside road transport, sectors where 85 percent of total emissions originate.

A carbon price will encourage electricity suppliers and users to switch from dirtier to cleaner energy, OECD said in the report. The agency also found that countries market designs favor fossil fuel power generation over renewable energy.

OECD said fixing the cheap cost of carbon can be done through taxes and emissions trading systems like cap-and-trade. Taxes can be added onto the existing tax system, which expedites implementation, but emissions trading can be an efficient option, it said.

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“Even moderate collective action to increase carbon prices can make a significant impact in putting countries on a pathway to a low carbon transition,” OECD Secretary-General Angel Gurría said in a statement. “Prices can and do trigger reductions of energy use, improvements in energy efficiency and a shift towards cleaner forms of energy. The challenge is in getting the prices right.”

The OECD report comes as the District Court of Appeals for the D.C. Circuit will on Tuesday look into the legal merits of the Clean Power Plan, an Obama Administration rule that mandates carbon emission reductions in the electricity sector. Electricity generation is responsible for nearly a third of the United States’ greenhouse gas emissions.