Contribution of carbon pricing to meeting a midcentury net zero target

A mid-century net zero target creates a challenge for reducing the emissions of emissions-intensive, trade-exposed sectors with high cost mitigation options. These sectors include aluminum, cement, chemicals, iron and steel, lime, pulp and paper and petroleum refining. Available studies agree that decarbonisation of these sectors is possible by mid-century if more ambitious policies are implemented soon. Existing carbon pricing policies have had limited impact on the emissions of these sectors because their marginal abatement costs almost always exceed the tax rate or allowance price. But emissions trading systems with free allowance allocations to emissions-intensive, trade-exposed sectors have minimized the adverse economic impacts and associated leakage. Internationally coordinated policies are unlikely so implementing more ambitious policies creates a risk of leakage. This paper presents policy packages a country can implement with minimal risk of leakage. To comply with international trade law the policy packages differ for producers whose goods compete with imports in the domestic market and producers whose goods are exported. Carbon pricing is a critical component of each package due its ability to minimize the risk of adverse economic impacts on domestic industry, support innovation and generate revenue. The revenue can be used to assist groups adversely impacted by the domestic price and production changes due to carbon pricing and to build public support for the policies

HAITES Erik;  BERTOLDI Paolo;  KÖNIG Michael;  BATAILLE Christopher;  CREUTZIG Felix;  DASGUPTA Dipak;  DE LA RUE DU CAN Stéphane;  KHENNAS Smail;  KIM Yong-Gun;  NILSSON Lars J.;  ROY Joyashree;  AGUS Sari; 

2024-03-20

TAYLOR & FRANCIS LTD

JRC127498

1469-3062 (online),   

https://www.tandfonline.com/doi/full/10.1080/14693062.2023.2170312,    https://publications.jrc.ec.europa.eu/repository/handle/JRC127498,   

10.1080/14693062.2023.2170312 (online),