Presentation titled "TAX POLICY AND CLIMATE CHANGE" from October 2021

1. TAX POLICY AND CLIMATE
CHANGE
IMF/OECD INPUTS TO THE G20 FINANCE TRACK
VIRTUAL MEETING ON GREEN BUDGETING – OECD PCBG AND
CFMCA PRINCIPLE 4

2. G20 High Level Tax Symposium on Tax Policy and
Climate Change
2
– IMF/OECD reports in April and
October
– Finance Ministers discussed the role
of tax in climate policy for the first time
– Recognised the potential of pricing,
noting different approaches and roles
for implicit and explicit pricing
– Identified a need for dialogue on
management of inter-country
spillovers
9 July 2021

3. Effective Carbon Rates
3
• Carbon taxes and emissions trading systems result in carbon prices, but so do excise
taxes on fuels (same tax base, similar behavioural effects). OECD’s Effective Carbon
Rates measures the combined carbon prices for energy combustion, from these policy
instruments.
• Across OECD and G20 economies, Effective Carbon Rates in 2018
– are zero for around 60% of CO2 emissions;
– are below EUR 30/tCO2 for around 83% of emissions;
– are below EUR 60/tCO2 for around 90% of emissions.
• Excise taxes dominate in road transport and household energy use.
• Where they exist, emissions trading systems dominate in electricity and industry (but
free permit allocation remains widespread, limiting investment incentives). Where there
are no emissions trading systems, prices in these sectors are usually very low.

4. Implicit and explicit carbon prices
4
• Countries’ approaches to mitigation differ, not only in relation speed and depth of
emission reductions, but also in relation to instruments (relative importance of carbon
prices, direct subsidies, tax incentives and regulation).
• Carbon taxes and emissions trading systems result in explicit carbon prices, other
instruments result in implicit carbon prices.
• Inter-country differences in both implicit and explicit prices risk resulting in carbon
leakage and adverse competitiveness effects.
• Managing these risks raises the difficult question of how to compare mitigation policies.
Dialogue is needed to ensure synergies between climate, trade and economic
development objectives rather than risk trade-offs. The OECD is exploring options to
support and structure such dialogue.

5. TAX POLICY AND CLIMATE
CHANGE
IMF/OECD INPUTS TO THE G20 FINANCE TRACK
VIRTUAL MEETING ON GREEN BUDGETING – OECD PCBG AND
CFMCA PRINCIPLE 4