Carbon pricing works to reduce emissions, says study

Carbon dioxide emissions from fossil fuel combustion in countries that have carbon pricing are two percentage points lower than those that do not have such systems in place

By Anuj Pant
Published: Wednesday 15 July 2020

Carbon pricing works to strongly reduce emissions, said a recent study that examined 142 countries from the beginning of such pricing systems in the 1990s. Carbon dioxide (CO2) emissions from fossil fuel combustion in countries that had carbon pricing were 2 percentage points lower than those that did not have such systems in place.

By the end of the study period, 43 countries had some form of carbon pricing in place, the study by researchers at The Australian National University (ANU) and Macquarie University pointed out.

“We found a statistically significant link between the adoption of a carbon price and reduced growth in carbon emissions,” said Paul Burke, the study’s co-author and associate professor at the Australian National University.

COemissions fell 2 per cent between 2007 and 2017 in countries with a carbon price, while they increased by 3 per cent in countries that did not have such pricing, according to Burke.

In the five-percentage point (pp) difference, 2 pp was attributed to carbon pricing, while the remainder was from other factors, said Burke. These factors are improved technologies, renewable energy policies and differences in fuel tax rates.

There are, however, technical and capacity limitations in several countries over monitoring carbon prices, according to Tarun Gopalakrishnan, deputy programme manager for climate change at Delhi-based think-tank Centre For Science and Environment.

The study — that claimed to be the world’s largest on the topic — used a variety of estimation approaches.

“By relying on a dataset of policies in a large number of countries, rather than focusing on a few countries, the study takes a different angle to showing the efficacy of carbon pricing,” said Gopalakrishnan.

Australia’s emissions from fossil fuel combustion fell during 2012-14 when carbon pricing mechanisms were in place, rose again and flatlined in 2019, noted Frank Jotzo, a co-author of the study.

“The message to governments could not be clearer: Carbon pricing works and typically to great effect,” he added.

Pricing carbon should reduce emissions because relative prices are changed in favour of clean energy options, according to Rohan Best, another co-author based out of Macquarie University.

“The economic theory is rock solid. We found strong evidence the theory works. You can see this process in practice across many countries around the globe,” said Best.

Carbon pricing, however, must be done keeping equity in mind, said Gopalakrishnan.

“Not all socio-economic classes have contributed equally to climate change and carbon pricing cannot become an imposition on those who are most vulnerable to the crisis,” he added.

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