Climate Change

Fact Sheet | Carbon Pricing around the World

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October 17, 2012

Table of Contents

    Carbon pricing is any government policy that puts a price on carbon emissions. Carbon pricing can take the form of a tax or a market-based mechanism, such as an emissions trading scheme. Since Finland introduced the world’s first carbon tax in 1990, many governments have implemented or proposed some form of carbon pricing, as shown in the figure below.

    Emissions Trading Scheme (ETS)

    In an emissions trading scheme (also known as a cap and trade system), an overall cap is placed on carbon dioxide (CO2) emissions. This cap can be lowered incrementally until it reaches a specified target level. Parties responsible for CO2 emissions, such as electricity generators or fuel refiners, obtain allowances (also called permits) to emit a specific amount of CO2 within the cap. These allowances can either be distributed through an auction or freely allocated. Should a participating member of an ETS emit more than the amount of allowances it owns, it must purchase more allowances. These can be purchased from other emitters who do not need all of their allowances and are thereby able to sell off unused ones. The price of emissions allowances is determined by the free market.

    Current Emissions Trading Schemes

    European Union Emissions Trading Scheme (EU ETS)

    • Launched in 2005, it is the largest trading scheme in the world.
    • It was planned in three phases: Phase I (2005 – 2007), Phase II (2008 – 2012) and Phase III (2013 – 2020).
    • Phase I included all 15 then-members of the EU, Phase II includes all 27 members of the EU, and in 2007, non-members Iceland, Norway and Liechtenstein joined. Switzerland is in negotiations to join the EU ETS for Phase III in 2013.
    • The EU ETS will link with the nascent Australian ETS in 2015, when Australian companies will be able to purchase up to 50 percent of their carbon offsets from Europe. EU ETS participants will be able to purchase offsets from Australia after July 2018.
    • The EU ETS covers 40 percent of all greenhouse gas emissions in the European Union.
    • The market price for carbon allowances in Phase I peaked in April 2006 at €30 ($36) per tonne (metric ton) of CO2, but then decreased to €0.10 per tonne in 2007 because of an excess supply of allowances. Phase I saw a 1.9 percent increase in CO2 total emissions in the EU. Allowances were given freely based on historic emissions.
    • During Phase II, prices fell from €30 ($36) per tonne in 2008 to under €10 ($12) per tonne in 2012. The emissions cap for Phase II was set seven percent lower than 2005 EU emissions levels; 10 percent of allowances were auctioned.

    Regional Greenhouse Gas Initiative (RGGI)

    • Launched in 2009 with a goal of reducing power-sector CO2 emissions 10 percent from 1990 levels by 2018.
    • Nine states are participants: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. New Jersey participated until 2011. Observer states and provinces include: Pennsylvania, Quebec, New Brunswick and Ontario.
    • Applies to power plants with generating capacity above 25 MW.
    • Nearly all carbon allowances are sold by auction. Auction prices for allowances (covering one tonne of CO2) have ranged from $2.06 to $3.51.

    Switzerland Emissions Trading Scheme

    • The Swiss ETS is a voluntary alternative to the domestic fuel tax.
    • About 400 companies participate in the scheme but it covers only about 6.5 percent of Switzerland’s annual 52 million tonnes of CO2 emissions.
    • Switzerland is in negotiations to join the European Union’s ETS.

    Tokyo Cap and Trade Program

    • Started in April 2010, the program includes over 1,300 buildings with the highest emissions in Tokyo – this covers 20 percent of greenhouse gas emissions in the metropolitan area.
    • Large office buildings must reduce emissions by 8 percent, large industries by 6 percent by 2014.
    • Carbon credits sold for $142 per tonne of CO2 emissions in initial trading in 2010.

     

    Proposed Emissions Trading Schemes

    Western Climate Initiative

    • California and Quebec are set to formalize the trading of emissions permits in 2013.
    • California will begin auctioning allowances in November. Its cap and trade program is expected to cover 85 percent of California’s greenhouse gas emissions.
    • California aims to return to 1990 emissions levels by 2020; Quebec aims to reduce greenhouse gas emissions 20 percent below 1990 levels by 2020.

    China

    • Five Chinese cities – Shanghai, Beijing, Shenzhen, Tianjin and Chongqing – and the provinces of Guangdong and Hubei are preparing pilot cap and trade projects to commence in 2013.
    • China plans to implement a national emissions trading scheme by 2015.
    • China’s goal is to reduce carbon intensity per unit of GDP, but not overall emissions.

    South Korea

    • The South Korean emissions trading scheme is scheduled to start in 2015.
    • Few details are available, but it is likely to cover about 60 percent of S. Korea's greenhouse gas emissions.

     

    Carbon Tax

    A carbon tax can take several forms. The most common type is a tax on fossil fuels, such as gasoline, heating oil, natural gas or coal, for their carbon content. Taxes also can take the form of a per kilowatt-hour (kWh) tax on electricity consumption.

    Canada

    Alberta 

    • Companies that produce over 100,000 tonnes of CO2 annually (covers 70 percent of emissions in Alberta) are taxed. Companies can reduce carbon intensity by 12 percent or pay CA$15 (US$15) per tonne of CO2. Tax enacted in 2007.

    British Columbia 

    • A revenue-neutral tax on the purchase or use of fossil fuels of CA$30 (US$30) per tonne of CO2 emissions was implemented in 2008.

    Quebec

    • In 2007, Quebec was first Canadian province to enact a carbon tax.
    • Tax on energy generators, distributers and refiners of CA$3.50 (US$3.50) per tonne of CO2.

    Costa Rica

    • A tax of 3.5 percent of the market value of fossil fuels has been in effect since 1997.
    • Revenues go to a fund that pays indigenous peoples to practice sustainable development and forest conservation.

    Denmark

    • Introduced the first version of its carbon tax in 1991.
    • Since 2005, the tax has been 90 DK ($14.72) per tonne of CO2 emissions on the purchase of fossil fuels.

    Finland

    • Introduced the world’s first tax on carbon in 1990. In 1995, the tax structure shifted from a tax on production of fossil fuels to a tax on consumption of fossil fuels.
    • The current carbon fuel tax is €18.05 ($22) per tonne of CO2 for traffic fuels and €9 ($11) per tonne for heating fuels.