Effective Carbon

Rates 2023
INTRODUCTION

Introduction
Effective Carbon Rates 2023 is the most detailed and This fourth edition of Effective Carbon Rates sheds light
most comprehensive account of how 72 countries, which on the state of carbon pricing as of 2021, with updates
collectively emit around 80% of global greenhouse gas reflecting developments up to 2023. It provides an
(GHG) emissions, price GHG emissions. The effective in-depth analysis of emissions trading systems (ETSs)
carbon rate (ECR) is the sum of tradeable emission in 2021 as well as of two common features of this
permits, carbon taxes and fuel excise taxes (Figure 1), carbon pricing instrument: free allocation and price
all of which result in a price on GHG emissions. They stability mechanisms. In addition, given the effect of
directly increase the cost of emitting GHGs, thereby the energy crisis and high inflation rates on the recent
stimulating the uptake in production, consumption and policy landscape, the report discusses the evolution of
investment choices of low- or zero-carbon alternatives. emissions trading systems, as well as fuel excise taxes
This brochure summarises the main results of the OECD and carbon taxes in the road transport sector in 2022
report Effective Carbon Rates 2023. and 2023.

Figure 1: Components of effective carbon rates

Effective carbon rate
(EUR per tonne of CO2)

Permit price from ETS Effective carbon tax rate

(EUR per tonne of CO2)
Explicit carbon price
(EUR per tonne of CO2)
Carbon tax rate Carbon tax rate

Permit price from ETS

Fuel excise tax rate Fuel excise tax rate

Carbon tax rate

Source: OECD (2023), Effective Carbon Rates 2023.

2 . OECD EFFECTIVE CARBON RATES 2023

 CARBON PRICING

The merits of carbon pricing

While many policy instruments can be deployed to reduce dioxide (CO2) emissions responsiveness to carbon
carbon emissions, the principal appeal of carbon pricing pricing within a unified framework for a large panel
is that in contrast with other mitigation instruments it of countries (44 OECD and G20 countries), sectors
encourages cost-effective abatement and at the same time and fuels. It shows that a 10 EUR/tCO2 increase in
it can raise public revenue. By decentralising abatement effective carbon rates would decrease CO2 emissions
decisions, it helps overcome the asymmetry of information from fossil fuel use by 3.7%. This effect is stronger for
between the government and polluters and encourages coal emissions, where the same increase in carbon
emissions cuts at the lowest cost. Moreover, carbon pricing prices would decrease emissions by 12%. This allows
creates ongoing mitigation incentives, and it reduces to simulate the revenue impact of introducing carbon
rebound effects. Finally, while direct support measures for price floors of different levels. A carbon price floor of
innovation are essential, evidence also shows that carbon EUR 60 per tonne of CO2, for instance, could generate
pricing spurs innovation and investment in low-carbon revenues of 2% of countries’ GDP on average. The
technologies, such as carbon capture and storage. revenue potential depends on countries’ starting
points – e.g. their initial carbon price level or the
Based on the Effective Carbon Rates database, a recent carbon-intensity of the economy.
study (D’Arcangelo et al., 2022) estimates carbon .

OECD EFFECTIVE CARBON RATES 2023 . 3

 MEASURING PROGRESS

Carbon pricing: progress with disparities across

sectors and countries
In 2021, 42% of the approximately 40 billion tonnes of Pricing instruments: Carbon price signals mainly arise
GHG emissions were priced in the 72 countries covered from fuel excise taxes, which cover more emissions
in this report, with significant variation of coverage, and have higher rates than the two explicit carbon
prices and pricing instruments across sectors and pricing instruments – i.e. carbon taxes and emissions
countries. trading systems. However, there is heterogeneity across
countries and sectors (Figure 2). In the road and off-
Coverage: The share of GHG emissions covered by road transport sectors, as well as in the agriculture and
carbon pricing ranges from only about 4% of non-CO2 fisheries sector, fuel excise taxes account for over 80% of
emissions from energy use being priced to around 93% the effective carbon rates. Carbon taxes tend to be more
of emissions priced in the road transport sector. significant as a share in the ECR for the buildings sector
than in other sectors. Electricity and industry sector
Price levels: About 16% of GHG emissions were emissions are predominantly priced through emissions
priced at EUR 30 per tonne of CO2 or more, and only trading systems (ETSs). Countries with the highest ECRs
7% of GHG emissions were priced above EUR 60 per are more likely to have at least partial coverage of their
tonne of CO2. emissions by an ETS and have the highest carbon taxes.

Figure 2: Carbon pricing instruments and share of GHG emissions by sector, 2021

90 100
Effective carbon rates (in 2021 EUR/tCO2e)

80

Share of GHG emissions (percent)

60
60

40
30

20

0 0
rt

ity

ry

gs

rt

s
rie

HG
po

po
st

in
ric

he
du

rG
ild
ns

ns
ct

fis
In
tra

tra
Bu
e

he
El

&

Ot
ad

ad

re
Ro

-ro

tu
ul
Off

ric
Ag

Permit prices from ETS Carbon taxes Fuel excise taxes Share in total emissions
Minimum share Median share Maximum share

Note: The left-hand side bars of this graph show ECR components and levels by sector. Together, emissions from the road transport, electricity, industry, buildings, off-road
transport and agriculture and fisheries sectors make up CO2 emissions from energy use. Other GHG emissions cover CH4, N2O and F-gas emissions as well as CO2 emissions
from industrial process. The right-hand side axis presents shares of emissions from these sectors in total emissions, as well as their variation across countries. “Minimum
share” (resp. “Maximum share”) indicates the minimum share this sector may represent in a country’s total GHG emissions. “Median share” is the median of such shares across
countries. For instance, the median share in the road transport sector indicates that half of countries in the sample have a road transport sector that accounts for more than
17.5% of national GHG emissions.

Source: OECD (2023), Effective Carbon Rates 2023.

4 . OECD EFFECTIVE CARBON RATES 2023

 EXPANDING REACH AND INTENSIFYING IMPACT

Expanding reach and intensifying impact:

the prevalence of emissions trading systems
over carbon taxes
In 2021, explicit carbon pricing mechanisms covered coverage by emissions trading systems more than doubled
more GHG emissions worldwide than in 2018. In between 2018 and 2021 and permit prices increased by
addition, there was a greater increase in coverage and almost 40%. In contrast, coverage and average tax rates
prices through emissions trading than via carbon taxes: remained almost the same for carbon taxes (Table 1).

Table 1: Evolution of coverage and rates of explicit carbon pricing instruments between 2018 and 2021

Coverage Marginal explicit carbon rate

(in constant 2021 EUR/tCO2)

Instrument 2018 2021 2018 2021

Carbon tax 6.7% 6.9% 11.6 12.4

ETS 13% 27% 11.2 15.5

Note: The marginal explicit carbon rates presented in this table are the emissions-weighted averages of marginal carbon rates on emissions priced by the instrument
considered. Prices and tax rates were converted into (constant) 2021 EUR using the latest available OECD exchange rate and inflation data.
Source: OECD (2023), Effective Carbon Rates 2023.

Between 2018 and 2021, several ETSs were introduced the introduction of the federal carbon pollution pricing
and others entered new phases. In 2021, China and backstop system. In 2020, Mexico launched the pilot
Germany implemented nation-wide sectoral ETSs, while phase for a national ETS, with the operational phase to
several Canadian provinces adopted ETSs in response to commence in 2023.

OECD EFFECTIVE CARBON RATES 2023 . 5

 EXPANDING REACH AND INTENSIFYING IMPACT

In 2021, ETS coverage of CO2 emissions from energy disparity arises from the free allocation of allowances,
use varied across countries, reaching about 99% in which can have implications for investment incentives
New Zealand. and the revenue raised.

ETSs commonly mostly cover emissions generated The share of free allocation of allowances in verified
by the electricity and industry sectors; however, an emissions ranges from 19% to 100% across the
increasing number of new ETSs apply upstream (i.e. to countries covered in this report, with an average of
fuel suppliers) and cover emissions from the buildings 55% (Figure 3). The variation in shares can be attributed
and transport sectors. to countries’ diverse industrial compositions, the
maturity of their ETSs, political constraints, national
The free allocation of allowances undermines investment preferences and other factors. In the EU ETS, industrial
incentives in low-emissions technologies and limits the sectors deemed most at risk of carbon leakage receive
amount of revenue raised the largest shares of free allocation. The Regional
Greenhouse Gas and Massachusetts initiatives, which
Contrary to most carbon and fuel taxes, marginal cover electricity sector emissions, provide minimal or no
and average price signals often diverge in ETSs. This free permits.

Figure 3: Share of free allocation of allowances in total verified emissions, by country, 2021

100
Freely allocated allowances (percentage)

80

60

40

20

0
L

L
L

L
A

Sc G A

s
D
R

P
R
N

E
E

X
N
U

T
N

ou RC

U
Z

rie

IR

PO

NZ
IS

BE
FR

LV

US

IT
ES
KO

GB

CY
NO
SW
CH

CZ
AU

PR

ES
NL
SV

DN
KA

LU

LT

DE
JP

CH

CA

FI

HU

SV
nt
ET
EU

Source: OECD (2023), Effective Carbon Rates 2023.

6 . OECD EFFECTIVE CARBON RATES 2023

 EXPANDING REACH AND INTENSIFYING IMPACT

Free allocation weakens the average carbon price sector. However, given that China’s electricity sector
signal especially in the electricity and industry sectors, emissions covered by the national ETS represent
where carbon pricing mostly arises from ETSs. Even around 80% of total electricity sector emissions
though permit prices in the electricity and industry covered by all ETSs, the total share of free allocation in
sectors are respectively of EUR 11.5 per tonne of CO2 and the electricity sector ends up being higher than in the
EUR 27.1 per tonne of CO2 on average, these sectors are industry sector.
allocated respectively 88% and 84% of their allowances
for free (Table 2), hence muting average carbon price Permit prices can experience significant volatility
signals in these sectors. Contrary to taxes, permit prices can experience
significant volatility even over the course of a single
In most countries, the share of free allocation in the year. This volatility can hinder sustained investment in
electricity sector is actually lower than that in the low and zero-carbon technologies.
industry sector. In China, Japan, Kazakhstan and Korea,
the share of free allocation in both sectors is equal or Price stability mechanisms exist in many systems,
close to 100%. In all other countries, the share of free either through direct approaches (e.g. through price
allocation ranges from 0% to about 59% in the electricity floors or ceilings), indirect approaches (e.g. through
sector and from 42% to about 91% in the industry market stability reserves), or a combination of both.

Table 2: Total share of free allocation and average permit price in sectors across countries subject to ETSs, 2021

Share of free Average permit price Share of free allocation Average permit price
Sector allocation (in EUR/tCO2) excl. China (in EUR/tCO2)
excluding China

Agriculture & fisheries 19% 23.40 19% 23.40

Buildings 39% 21.16 33% 22.72

Electricity 88% 11.54 34% 36.26

Industry 84% 27.14 78% 36.25

Off-road transport 77% 25.20 63% 36.75

Road transport 2% 20.90 2% 20.90

Source: Adapted from OECD (2023), Effective Carbon Rates 2023.

In most countries,
the share of free
allocation in the
electricity sector is
lower than that in the
industry sector.

OECD EFFECTIVE CARBON RATES 2023 . 7

THE CARBON PRICING SCORE

Permit prices have been more resilient than fuel

excise and carbon taxes during the energy crisis
Since 2021, the energy crisis and Russia’s war of Tax rates in the road transport sector decreased in real
aggression against Ukraine have led to policy responses, terms, due to rate cuts in response to pre-tax price hikes
that have resulted in changes in the energy taxation and but also due to a lack of indexation to inflation. Rates
carbon pricing landscape in 2022 and 2023. Governments decreased more between 2021 and 2022 than between
have sought to provide support to households and firms 2022 and 2023 (Figure 4).
through reduced energy taxes, among other support
measures. Within OECD and G20 countries, the gap between the
ECR faced by the road transport sector and that faced
Despite a high-energy price environment over the by the electricity and industry sectors has lessened
period, new ETS initiatives have emerged, mostly in between 2021 and 2023, due to a decrease in fuel excise
Latin America (e.g. Mexico) and in Asia (e.g. Indonesia). taxes and an increase in permit prices.
Moreover, ETS permit prices have increased for most
systems between 2021 and early 2023, with the increase
mainly taking place between 2021 and 2022.

Figure 4: Evolution of effective carbon tax rates in the road transport sector since 2021

IDN ZAF
HUN USA
GRC TUR
GBR SWE
FRA SVN
FIN SVK
EST PRT
ESP POL
DNK NZL
DEU NOR
CZE NLD
CRI MEX
COL LVA
CHN LUX
CHL LTU
CHE KOR
CAN JPN
BRA ITA
BEL ISR
AUT ISL
AUS IRL
ARG IND
-100 -50 0 50 -60 -40 -20 0 20
Percentage change Percentage change
2021-2022 2021-2023

Note: Percentage changes between 2021 and 2022 as well as between 2021 and 2023, in constant 2021 LCU.
Source: OECD (2023), Effective Carbon Rates 2023.

8 . OECD EFFECTIVE CARBON RATES 2023

 OTHER GHG EMISSIONS

Non-CO2 GHG emissions are the least covered

by carbon pricing measures
Other GHG emissions (methane – CH4, nitrous oxide – effectively addressing these emissions through pricing
N2O, fluorinated gases and CO2 emissions from industrial mechanisms is likely to require the consideration of
process) can represent a significant share of total mitigation policies beyond carbon taxes, which are
emissions in certain countries. This implies the need to primarily designed to address CO2 emissions from
incorporate these emissions in designing pathways to energy use.
net-zero emissions. Yet, they are the least covered by
carbon pricing measures. Presently, carbon pricing instruments covering other
GHG emissions generally only apply to emissions that
In the 72 countries analysed, other GHGs make up are generated by industrial processes, which are partly
between 8% and 92% of countries’ total GHG emissions covered by ETSs and some carbon taxes.
(Figure 5).
In most countries, non-energy related agricultural
Uncertainties in the measurement of these other GHGs emissions make up the highest share of other GHG
makes establishing the tax base for these emissions emissions. Finding ways to address these emissions
considerably harder than for CO2 emissions. Hence, presents a challenge for the years to come.

Figure 5: Share of other GHG emissions in total emissions, by country

JPN ISR
ZAF PRT
LUX MEX
DEU MAR
KOR AUS
BEL LTU
NLD DOM
AUT LVA
JAM LKA
CZE KGZ
USA IDN
SVK PHL
CHN ECU
KAZ ISL
ITA PER
FIN IRL
POL PAN
CHL ARG
EST CRI
SVN GTM
CAN COL
NOR CIV
GBR BRA
CHE BGD
TUR NZL
SWE NGA
MYS GHA
HUN RWA
ESP KEN
CYP URY
FRA PRY
UKR BFA
IND MDG
EGY UGA
GRC ETH
DNK

0 20 40 60 80 100 0 20 40 60 80 100
percent percent
CO2 emissions from energy use Other GHG emissions

Note: Other GHG emissions stand for emissions from CH4, N2O, F-gases and process CO2 emissions.
Source: OECD (2023), Effective Carbon Rates 2023.

OECD EFFECTIVE CARBON RATES 2023 . 9

CONCLUSION

Conclusion and outlook

Carbon pricing is gaining momentum worldwide and through untargeted measures. These measures, along
explicit carbon pricing instruments are assuming an with a stagnation or cut in nominal fuel and carbon
increasingly important role. ETSs are progressively tax rates amidst high inflation have weakened carbon
expanding in countries where they are already price signals. Building resilience to future shocks and
established and being introduced in new countries. ETS maintaining carbon price signals may warrant a more
permit prices have also demonstrated strong resilience targeted approach. At the same time, medium and
to the energy crisis, sustaining an upward trend in most long-term solutions to climate change and to future
cases since 2021. Despite this momentum, there are energy shocks include investments in energy efficiency
considerable disparities in carbon pricing coverage and and low-carbon energy sources and technology.
price levels across countries and sectors, with over half
of global emissions unpriced. Furthermore, addressing emissions from methane,
nitrous oxide, fluorinated gases and process-related
Additionally, the recent energy crisis resulted in a rise in CO2 presents an additional challenge for the years to
energy prices, compelling countries to provide support come.

Curbing emissions from energy

use is urgent, but also addressing
other emissions, such as
methane, is a critical challenge.
A comprehensive approach
is key to tackle these diverse
sources of greenhouse
gas emissions.

10 . OECD EFFECTIVE CARBON RATES 2023

2023
 Further reading
OECD (2023), Effective OECD (2021), Taxing
OECD Series on Carbon Pricing and Energy
Carbon Rates 2023: Pricing Taxing Energy Use Energy Use for Sustainable
for Sustainable
Taxation

Effective Carbon Rates 2023 Greenhouse Gas Emissions Development: Opportunities

PRICING GREENHOUSE GAS EMISSIONS THROUGH
TAXES AND EMISSIONS TRADING through Taxes and Emissions Development for Energy Tax and Subsidy
Opportunities for energy tax and subsidy
Trading, OECD Series on Carbon reform in selected developing and Reform in Selected Developing
emerging economies
Pricing and Energy Taxation, and Emerging Economies,
OECD Publishing, Paris OECD Publishing, Paris
https://oe.cd/ECR2023 http://oe.cd/TEU-SD

OECD (2022), Pricing OECD (2019), Taxing Energy

OECD Series on Carbon Pricing and Energy Taxation

OECD Series on Carbon Pricing and Energy

Taxation
Greenhouse Gas Emissions: Use 2019: Using Taxes for
Pricing Greenhouse Gas Turning Climate Targets into Taxing Energy Use 2019 Climate Action,
USING TAXES FOR CLIMATE ACTION
Emissions
TURNING CLIMATE TARGETS INTO CLIMATE ACTION Climate Action OECD Series OECD Publishing, Paris
on Carbon Pricing and Energy http://oe.cd/TEU2019
Taxation, OECD Publishing, Paris
Pricing Greenhouse Gas Emissions

https://oe.cd/il/5jw
Taxing Energy Use 2019
TURNING CLIMATE TARGETS INTO CLIMATE ACTION

USING TAXES FOR CLIMATE ACTION

OECD WORKING PAPERS

D’Arcangelo, F. M., Pisu, M., Raj, A. and Van Flues, F. and K. Van Dender (2020), Hemmerlé, Y., et al. (2023), “Aiming better:
Dender, K. (2022), “Estimating the CO2 “Carbon pricing design: Effectiveness, Government support for households
emission and revenue effects of carbon efficiency and feasibility: An investment and firms during the energy crisis”,
pricing: New evidence from a large perspective”, OECD Taxation Working Papers, OECD Economic Policy Papers, No. 32,
cross-country dataset”, No. 48, OECD Publishing, Paris, OECD Publishing, Paris,
OECD Economics Department Working Papers, https://doi.org/10.1787/91ad6a1e-en. https://doi.org/10.1787/839e3ae1-en.
No. 1732, OECD Publishing, Paris,
https://doi.org/10.1787/39aa16d4-en.

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