Measuring Total Carbon Pricing

While countries increasingly commit to pricing greenhouse gases directly through carbon taxes oremissions trading systems, indirect forms of carbon pricing—such as fuel excise taxes and fuel subsidyreforms—remain important factors affecting the mitigation incentives in an economy. Taken together, how can policymakers think about the overall price signal for carbon emissions and the incentive it creates This paper develops amethodology for calculating a total carbon price applied to carbon emissions in a sector, fuel, or the whole economy. Itrecognizes that rarely is a single carbon price applied across an economy; many direct carbon pricing instrumentstarget specific sectors or even fuels, much like indirect taxes on fossil fuels; and carbon and fuel taxes can besubstituted one for another. Tracking progress on carbon pricing thus requires following both kinds of priceinterventions, their coverage, and specific exemptions. This inclusive total carbon pricing measure can facilitateprogress in discussions on minimum carbon price commitments and inform assessments of the pricing of carbon embodied intraded goods. Calculations across 142 countries from 1991 to 2021 indicate that although direct carbon pricing now coversroughly a quarter of global emissions, the global total carbon price is not that much higher than it was in 1994when the United Nations Framework Convention on Climate Change entered into force. Indirect carbon pricing stillcomprises the lion’s share of the global total carbon price, and it has stagnated. Taking these policy measures intoaccount reveals that many developing countries—particularly net fuel importers—contribute substantially to global carbonpricing. Tackling fuel subsidy reform and pricing coal and natural gas emissions more fully would have a profoundeffect on aligning carbon prices across countries and sectors and with their climate costs.