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Resource guide for NDC finance

Selecting effective financial instruments to support action on climate change

This low emission development strategies (LEDS) Finance Resource Guide presents a curated selection of resources on a range of topics around finance for LEDS and Nationally Determined Contributions (NDCs). It is designed to help LEDS practitioners find high-quality resources that meet their specific needs, avoiding time-consuming searches on the internet. It will be useful to individuals working on, or interested in, LEDS and NDC finance in both developed and developing countries.

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5.7 Carbon pricing

A price on carbon helps shift the burden for the damage back to those who are responsible for it, and who can reduce it. Instead of dictating who should reduce emissions where and how, a carbon price gives an economic signal and polluters decide for themselves whether to discontinue their polluting activity, reduce emissions, or continue polluting and pay for it. In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society. A carbon price also stimulates clean technology and market innovation, fueling new, low carbon drivers of economic growth. There are two main types of carbon pricing: emissions trading systems (ETS) and carbon taxes. (Adapted from World Bank > What we do > Pricing carbon.)

Related resources

Effective carbon rates: Pricing CO2 through taxes and emissions trading systems

Organization(s):OECD

  • Carbon pricing

This detailed report from the Organisation for Economic Co-operation and Development presents the first comprehensive analysis of the extent to which countries use carbon prices. Chapter 2 (6 pp) discusses why carbon prices are an effective and low cost policy tool, exploring the environmental effectiveness of carbon prices and why they allow countries to reach their emissions targets in the cheapest possible way, as well as looking at the economic benefits of carbon pricing. Chapter 4 presents the results of the analysis of effective carbon rates in 41 (mainly OECD) economies.

State and trends of carbon pricing 2016

Organization(s):World Bank/Ecofys/Vivid Economics

  • Carbon pricing

This report provides an up to date overview of existing and emerging carbon pricing instruments around the world, including national and subnational initiatives. It presents summary information on the level of coverage of the schemes and the prices prevailing in them. Section 2.3 describes developments in national and subnational schemes; section 3 focuses on the importance of aligning carbon pricing with the broader policy landscape. The analysis provides lessons for policymakers on how to maximize synergies between climate mitigation and other related policies while managing potential tensions and trade offs. This report is a useful and up to date summary of the state of carbon pricing around the world.

The FASTER principles for successful carbon pricing: An approach based on initial experience

Organization(s):World Bank/OECD

  • Carbon pricing

This report draws on a growing base of global experience in implementing carbon pricing mechanisms, as well as economic literature, to identify a set of principles—the FASTER principles—for successfully steering an economy towards the long term goal of decarbonization through the use of carbon pricing. It focuses on how to achieve this in a fair and transparent way that harnesses emission reduction opportunities at least cost, provides flexibility, and is aligned with other policies. It focuses on domestic carbon pricing mechanisms that put an explicit price on greenhouse gas emissions—whether through taxes or emissions trading systems. Throughout the report, brief case study examples are given to show how the principles are being used in different countries.

Putting a price on carbon: Reducing emissions

Organization(s):WRI

  • Carbon pricing

Although written to explore the impact on the USA of a national carbon price, this issue paper provides a useful and clear explanation of how carbon pricing leads to reduced emissions and investment in low carbon technology development and deployment, including from an economic perspective. The paper describes how and when emission reductions from a national carbon price are likely to take place in key sectors, showing for example that a strong carbon price will be transformative in the electricity sector, where systems are in place to shift production away from high carbon fuels when it becomes cost effective to do so, but more gradual in other sectors such as transport. This paper will be a useful resource for policymakers interested in how carbon pricing works.

The bottom line on carbon taxes

Organization(s):WRI

  • Carbon pricing

Climate policy debates often feature discussions about the role of a carbon tax, either as an alternative or as a supplement to a cap and trade program. This factsheet describes the similarities and differences between the two policy approaches and answers other common questions about a tax on carbon.

Cap and trade: The basics

Organization(s):IETA

  • Carbon pricing

This one page summary explains the basics of how emissions trading works, what sectors are typically covered, how entities comply with trading schemes, and which countries have implemented trading schemes.

Country case study

The world’s carbon markets: A case study guide to emissions trading

Organization(s):EDF/ICE/IETA

  • Carbon pricing

This series presents 19 case studies of country carbon pricing schemes. Each includes a brief analysis of each program’s unique features, as well as the challenges faced in its development, implementation, and operation. They also outline the key design elements, important issues, and results to date.