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- Firm
- Provisional
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How well are we doing?
Editor's note: We have recently refreshed and updated our data for all countries on the platform, as we revised the 21 policies we cover.
Basic economics (as well as common sense) tells us that the cheaper something is, the more it will be consumed, and vice versa. So a simple way to make our economies greener would be to make polluting and damaging the climate more expensive – by pricing carbon.
National policies here tend to fall around low-to mid-range performance. Amongst the eleven countries performing relatively well, Sweden and Canada are leading the way, with Sweden considered a global frontrunner in carbon pricing with its explicit and implicit carbon pricing instruments that cover more than 95% of fossil carbon emissions.
France, Portugal, and the United Kingdom all have carbon trading or taxation policies in place for key sectors. For the European countries, this approach is largely arranged through the EU Emissions Trading Scheme (ETS), one of the most comprehensive attempts to set up international pricing of carbon; although held back by a failure to create the stable and high carbon price needed to drive investment decisions. Countries with comparatively lower performance include Peru, Botswana, and Mozambique, with no national carbon tax or emissions trading scheme currently in place.
A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services.
About this policy
There are many ways of pricing carbon. One is a carbon tax: a fee levied on the use of fossil fuels, based on how much CO2 they emit, which makes dirty fuels more expensive and incentivises efficiency and clean energy. Another is a carbon price in a carbon market (or carbon trading scheme), which requires companies to acquire licences to emit carbon, with the price set amongst themselves based the number of permits and ability of companies to reduce emissions and sell their 'spare' credits.
There is also the question of who should be paying for carbon – large industries, businesses, SMEs, or even households and individual people – and how the revenues from any instrument should be used. Some policies are “revenue neutral”, in that additional costs to the consumer are offset by tax cuts elsewhere; others earmark the proceeds of a tax towards green investment.
For any carbon price to be effective, it must be high enough to provide a real incentive, and stable enough to allow companies to plan around it. The aim is that polluting firms will pay up in the short term, be forced to clean up in the medium term, and be pushed out of business by their greener competitors in the long term.
By contrast, clear, legally binding targets in the form of carbon budgets offer both conceptual simplicity and political challenge - as it is much easier to set a budget than it is to keep to one. The unyielding logic of carbon budgets is one reason why some countries are reluctant to adopt them. More ambitious governments are creating legally binding frameworks for carbon budgets, but others may not have plans to implement them soon, cover all sectors/emissions, or set budgets at levels that represent a fair share of staying within 1.5 or 2°C.
Determining the strength of carbon pricing policy largely depends on its scope, the price levels, and how it integrates across borders. The best policies will have clearly structured trading schemes or taxes, sending strong price signals across a large share of national emissions, and with the potential to be integrated at a regional level - so that polluters must change their behavior and technology, rather than just relocate their emissions. This requires nuance when it interacts with green trade and just transition concerns.
Case Study: Sweden
Sweden was the first country in the world to introduce a carbon tax, in 1991. The current tax is set at 1180 SEK per tonne (US$120/€110), which is the highest of any country in the world. The tax has been increased gradually over time, allowing sectors some freedom to adapt and plan, while revenues are used to fund social welfare spending – especially on inequality measures – and climate-related projects.
Sweden Country Profile
Case Study: United Kingdom
As recognised pioneers of carbon budgeting, the UK has developed arguably the strongest approach to carbon budgeting and governance. The 2008 Climate Change Act set out a framework of successive, legally binding five year carbon budgets to meet the UK’s obligations under the Paris Agreement up to 2050. Compliance with budgets, and recommendations for achieving them, is supported by the independent Committee for Climate Change (CCC). Despite this strong approach and success in keeping within budgets so far, the CCC is not able to prevent governments making policy decisions that will breach future budgets – only drawing attention to the implications that high carbon policies (e.g. airport expansion) have for the overall budget.
United Kingdom Country Profile