Session 2A presentation from the 7th Strategic Dialogue of the Carbon Market Platform, 4-5 October 2022

1. Based on summary paper: The role of carbon pricing in transforming pathways to
reach net-zero emissions: Outlining potential issues and options in food systems,
S. Errendal, J. Ellis & S. Jeudy-Hugo
CARBON PRICING AND ITS ROLE IN
REACHING NET-ZERO EMISSIONS
Seventh Strategic Dialogue
Carbon Market Platform
4 October 2022
Sofie Errendal
Environment, Transitions and Resilience Division
Environment Directorate

2. 2
Outline
Reaching net-zero emissions in a just manner
Carbon pricing’s contribution to transforming emissions pathways: Insights from electricity
sector
Enhancing carbon pricing’s contribution to reach net-zero
Initial insights
Next steps

3. 3
Outline
Reaching net-zero emissions in a just manner
Carbon pricing’s contribution to transforming emissions pathways: Insights from electricity
sector
Enhancing carbon pricing’s contribution to reach net-zero
Initial insights
Next steps

4. 4
Reaching net-zero emissions in a just manner
• Existing development patterns
will not achieve the rapid and deep
emission reductions needed
• Disrupting existing development
patterns can help reduce global
emissions to reach net-zero
around 2050
• Actions that can lead to rapid and
deep emissions reductions are
likely to have disruptive impacts,
and targeted and proactive
measures are needed to ensure a
just transition.

5. 5
Outline
The imperative of reaching net-zero emissions in a just manner
Carbon pricing’s contribution to transforming emissions pathways: Insights from electricity
sector
Enhancing carbon pricing’s contribution to reach net-zero
Initial insights
Next steps

6. 6
Understanding carbon pricing’s overall impact to date
Average GHG emissions
reductions of 0-2% per
year, yet studies are few and
focused on Europe2
Carbon price signal inhibited
by fossil fuel subsidies on
22% of GHG emissions in
the 71 countries in 20211
GHG
Technological innovation
impact has been short-term,
low-cost impacts (energy
efficiency and fuel switching) 3
Space to increase potential
through price and coverage
increase, policy coherence
and policy packages
Average explicit carbon
price across 71 countries
was EUR 4.29/tCO2 in
20211
1 Van Dender and Teusch (Forthcoming); 2 Green 2021, 3 Calel and Dechezleprêtre, 2016; 3 Rosenbloom et al., 2020; 3
Lilliestam et al., 2020; 2022
Across 71 countries in 2021:
Explicit and Implicit carbon
pricing covered 25% and
24% of GHG emissions1

7. 7
Understanding carbon pricing’s impact in the electricity
sector
Insights from carbon pricing schemes explored
Little data disentangles
carbon pricing’s effect
from other effects
GHG
Carbon pricing and other
policies reduced GHG
emissions in EU1 and CA2
Increased the renewable
energy share in electricity
mix in EU3,4 and CA2,5,6
Revenue provided training
to build skills and support
just transitions in CA7
1 ETC/CME, 2021; 2 LAO, 2020; 3 EEA, 2021; 4 EC, 2021; 5 CARB, 2021; 6 California Energy Commissions, 2019; 7 California
Climate Investments, 2021;
EU ETS
California Cap &
Trade
New Zealand
ETS

8. 8
Outline
The imperative of reaching net-zero emissions in a just manner
Carbon pricing’s contribution to transforming emissions pathways: Insights from electricity
sector
Enhancing carbon pricing’s contribution to reach net-zero
Initial insights
Next steps

9. • Demand- and supply-side changes are needed to align emission
pathways with net-zero by 2050
– To date, climate policies have mostly focused on the supply-side
9
Demand- and supply-side changes needed to reach
net-zero
• Demand-side changes are also important as these could reduce GHG
emissions in end-use sectors by 40-70% and influence supply side
Socio-cultural factors
and behaviour
Infrastructure
use
Technology
adoption
E.g. shifts from high-
to low-GHG diets
E.g. urban re-planning
to promote cycling
E.g. increase energy
efficient buildings

10. 10
Incentivising demand-side changes
SIT abbreviation for Socio-cultural factors and behaviour; Infrastructure use; and, Technology adoption
IPCC, 2022; Creutzig et al., 2018; 2022; EEA, 2009; Romera & Nordlander, 2018; OECD, 2021;
Avoid
Socio-cultural &
behaviour
Shift
Infrastructure
use
Improve
Technology
adoptions
ASI
framework
Carbon pricing can contribute to consumption avoidance or
reduction of GHG-intensive goods and/or services
• Flight shame movement Sweden
Carbon pricing can support policies that shift preferences and
behaviour to more carbon-efficient technologies and services
• Re-designing urban areas to foster sustainable transport
Carbon pricing can support policies that improve the
efficiency of alternative technologies via its revenues
• Revenue recycling for technology improvement

11. 11
Sequencing policies to increase effectiveness
• Policy sequencing has the potential to reduce or remove potential barriers
and can increase the effectiveness of polices and thereby support the
pathway to net-zero
• 2001: Policy promoting
renewable energies
• 2005: Start of EU ETS • 2009 & 2014: Climate &
Energy Packages
• EU example
Meckling, Sterner and Wagner, 2017; Pahle et al., 2018
Green preparatory policies Pricing policy Reform of existing policies

12. • Enhanced international co-operation and collaboration can
encourage more ambitious and effective carbon pricing
approaches
12
International co-operation and collaboration
Processes
e.g.
Climate
Club
Just Energy
Transition
Partnerships
Policies
e.g.
Carbon Border
Adjustment Mechanism

13. 13
Outline
The imperative of reaching net-zero emissions in a just manner
Carbon pricing’s contribution to transforming emissions pathways: Insights from electricity
sector
Enhancing carbon pricing’s contribution to reach net-zero
Initial insights
Next steps

14. 14
Initial insights
Disrupting existing development patterns are needed to reach net-zero by 2050,
yet this approach must take just transition aspects into account
Carbon pricing’s impact to date have been limited and its sectoral effects are
difficult to disentangle from other elements
Options exist to enhance carbon pricing’s net-zero contribution, e.g. demand-
side policies, policy sequencing and international co-operation and collaboration
GHG

15. 15
Initial insights
Disrupting existing development patterns are needed to reach net-zero by 2050,
yet this approach must take just transition aspects into account
Carbon pricing’s impact to date have been limited in terms of the change
needed and its sectoral effects are difficult to disentangle from other elements
Options exist to enhance carbon pricing’s net-zero contribution, e.g. demand-
side policies, policy sequencing and international co-operation and collaboration
GHG

16. 16
Initial insights
Disrupting existing development patterns are needed to reach net-zero by 2050,
yet this approach must take just transition aspects into account
Carbon pricing’s impact to date have been limited in terms of the change
needed and its sectoral effects are difficult to disentangle from other elements
Options exist to enhance carbon pricing’s net-zero contribution, e.g. demand-
side policies, policy sequencing and international co-operation and collaboration
GHG

17. 17
Outline
1. The imperative of reaching net-zero emissions in a just manner
2. Carbon pricing’s contribution to transforming emissions pathways: Insights from electricity
sector
3. Enhancing carbon pricing’s contribution to reach net-zero
4. Initial insights
5. Next steps

18. 18
Next steps
Q1 2023
working paper
publication
2022/23
Mid Dec – Start Jan:
CMP review of draft
working paper
2022
17 Oct:
CMP comments on
summary paper

19. Thank you for your attention
Contact:
Sofie.Errendal@OECD.org
Jane.Ellis@OECD.org
Sirini.Jeudy-Hugo@OECD.org
19
Contact details