Who pays the tax: carbon
pricing by sector andcountry under alternative
climate scenarios
November 2022

I

Executive summary
Measures to limit global warming and address climate change are partof policy discussions happening around the globe. These policies canhave broad implications for businesses, individuals, economies and theplanet. Meeting the agreed-upon objectives of the Paris Agreement will
require a significant shift in how countries approach climate change
mitigation. This could include policies such as carbon pricing, borderadjustments and other regulatory and tax measures.
At its most basic level, carbon pricing makes goods and services that are carbon intensive relatively more
expensive than other less carbon-intensive goods and services. Businesses and households respond bypurchasing less of the more expensive carbon-intensive goods and services, thus generally reducing
greenhouse gas (GHG) emissions. Once carbon pricing is implemented, nearly all businesses are affectedby the policy through additional direct or indirect business costs.
76% of the Group of Twenty (G20) and Organization for Economic Cooperation and Development(OECD) countries have already implemented some form of carbon pricing. Given the global focus on
climate change and the range of possible policy paths that can be taken by governments worldwide, it
is important that businesses formulate long-term strategies to adjust to the policies employed to makeprogress in the global transition toward a green economy. As part of this, businesses need to consider avariety of possible future scenarios.
To assist businesses in this effort, this report examines the carbon price liability by sector and country
under alternative climate scenarios. The scope of this analysis is the G20 and OECD countries, which
together account more than 90% of world GDP, approximately 80% of world population and above 80% ofworld carbon emissions.

Specifically, this report examines:1

1

Business-as-usual(BAU) scenario

This scenario assumes that policies in place remainin place at their current price and emissions
coverage. Additionally, this analysis assumes thatgoing forward sectors and countries continue todecarbonize at rates seen in recent years.

2

Low-carbon-economy(LCE) scenario

Estimated country-level decarbonization paths
assume global net-zero carbon emissions by 2050.
The LCE scenario is assumed to be achieved via useof carbon pricing.

This type of scenario analysis can be a useful tool for assessing the potential range of climate change
implications. Businesses, for example, can use it to inform investors and stakeholders about how theorganization is positioning itself in light of climate-related risks and opportunities.
See body of report and endnotes for additional detail and assumptions. Additionally, see endnotes for caveats
and limitations. Any modeling effort is only an approximate depiction of the economic forces it seeks torepresent, and the economic model developed for this analysis is no exception.

1

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Background• Putting a price on carbon is viewed by many asa relatively easy and effective tool for lowering
carbon emissions. Carbon pricing raises the relative
cost of carbon-intensive commodities and services
compared to other, less carbon-intensive goods
and services.
• Regardless of who would be statutorily required
to remit the price on carbon, nearly all businesses
would be affected by a carbon price. A price would
give rise to additional direct and indirect businesscosts, with emissions-intensive sectors incurring
more of the former and other sectors more of
the latter.
• Direct impacts are the costs that the carbon pricewould impose on carbon-emitting sectors. Indirect
impacts include increased prices for goods andservices purchased from other businesses dueto those supplier businesses being subject to acarbon price.

II

III

Business-as-usual scenario• In a BAU scenario, existing policies are assumed to remainin place at their current price and emissions coverage andfuture decarbonization is assumed to follow recent trends.
Scenarios are not predictions but potential future paths
that are useful to help evaluate possible future risks andopportunities.
• Across G20 and OECD countries, the average headline
carbon price is $47/ton whereas the average effective
carbon price is $23/ton.2 Similarly, the median headline
price is $50/ton, and the median effective carbon price is$25/ton. There are only three countries with an effective
carbon price above $50/ton. In contrast, there are 23
countries with a headline carbon price above $50/ton.
(Figures ES-1 and ES-2)• Emissions coverage varies significantly by sector across
G20 and OECD countries. Across all sectors, 30% ofemissions are subject to a carbon price. This is highest inelectricity (56%) followed by road transport (22%), industry(18%), buildings (13%), agriculture and fisheries (12%) and
off-road transport (11%). (Figure ES-3)$47

Figure ES-1. Distribution of headline carbon prices in G20 andOECD countries, 2022
Count of countries by headline carbon price7

Weighted average>$0–$101

1$10–$20$20–$302$30–$404

3$40–$50$50–$60

2$60–$70 Above $70

Note: Analysis includes all G20 and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

$23
Simple averageCount of countries by effective carbon price
9

8

5

3
>$0–$10$10–$20$20–$30

810
2$30–$40$40–$50$50–$60$50
MedianFigure ES-2. Distribution of effective carbon prices in G20 andOECD countries, 2022$0

Simple average

$25

9

$0

17

1

0

$60–$70 Above $70

Note: Analysis includes all G20 and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

$7
Weighted average$25
MedianFigure ES-3. Share of emissions covered across G20 and OECD countries
in 2022, by sector
56%

22%Electricity

Roadtransport

30%
18%
Industry

13%

12%

Buildings

Agriculture
and fisheries

11%
Off-roadtransport

All sectors

Note: Analysis includes all G20 and OECD countries. Figures are rounded.
Source: EY analysis.
A headline carbon price is the price charged for each ton of carbon subject to a carbon price. For example, if a country has a carbon price of $100/ton but only 10% of
the country’s carbon emissions are subject to a carbon price the headline price is still $100/ton. An effective carbon price is the average price per ton of carbon across acountry’s total carbon emissions (i.e., not just carbon emissions subject to a price). For example, if a country has a $100/ton carbon price but only 10% of the country’s
emissions are subject to a price then the effective carbon price is $10/ton (=$100/ton x 10%).

2

Who pays the tax: Carbon pricing by sector and country under alternative climate scenarios

Low-carbon economy scenario• By 2030, the estimated carbon price liability
under an LCE scenario would be 19 times theestimated carbon price liability under a BAU
scenario across all G20 and OECD countries.
By 2050, the estimated carbon price liability
under an LCE scenario would decline to fivetimes the estimated carbon price liability undera BAU scenario. This change is the net impactof a higher carbon price (increases liability) andhigher decarbonization (decreases liability).
This varies by sector and country. (Figures ES-5
and ES-6)$1,200$1,095$1,000Range of priceunder LCE

$800

$800
$600
$400

$504

$8

$200
0

2022

2025

2030

2035

BAU

2040

2045

2050

LCE

Note: Analysis includes all G20 and OECD countries. Values are US$2022.
Figures are rounded.
Source: EY analysis.

Figure ES-5. Carbon price liability 2022-2050, BAU versus LCE
80x
LCE liability/
BAU liability• Under an LCE scenario, the 2050 carbon
intensity declines to 2% of the level of carbon
intensity of 2022 while under a BAU scenario,
the 2050 carbon intensity declines to 46% of thelevel of carbon intensity of 2022.

Figure ES-4. Effective carbon prices, BAU versus LCE

60x
40x
20x
0

2022

2025

2030

2035

G20 and OECD countries overall
BRIC
EU-12

2040

2045

2050

North America
Other G20 and OECD countries

Note: Results are scaled to the size of the world economy in 2022. Analysis includes
all G20 and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

Figure ES-6. Carbon price paid by sectors 2022-2050,
BAU versus LCE
80x
LCE liability/
BAU liability• This analysis includes a range for the effective
carbon price necessary to achieve net-zerocarbon emissions by 2050. This range, estimatedby three prominent integrated assessment
models, highlights both the significant
uncertainty surrounding the necessary
carbon price as well as the significant orderof magnitude of the effective carbon pricenecessary to achieve net zero. In particular,
by 2050, the effective carbon price in the LCE
scenario ranges between $504 and $1095. This
compares to the BAU scenario effective carbon
price of approximately $8 in 2050. The averageof the three LCE scenario effective carbon prices
grows from $254 in 2030 to $440 in 2040 and$800 in 2050. (Figures ES-4)

60x
40x
20x
0

2022
Total
Buildings

2025

2030

Off-road transport
Road transport

2035

2040

2045

Industry
Agriculture and fisheries

2050
Electricity

Note: Results are scaled to the size of the world economy in 2022. Analysis includes all G20
and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

IVV

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Contents
1 Introduction...................................................................................................1
2 Primer on carbon pricing................................................................................2
Design considerations........................................................................................3
Scenario analysis...............................................................................................4
3 Carbon pricing under a BAU scenario.............................................................5
Current carbon pricing regimes..........................................................................5
Headline carbon prices.......................................................................................7
Effective carbon prices.......................................................................................8
Carbon pricing by sector ...................................................................................9
Decarbonization pathway...................................................................................10
4 Carbon pricing under an LCE scenario............................................................11
Effective carbon prices.......................................................................................12
Decarbonization pathway...................................................................................13
Estimated carbon price liability...........................................................................15
Estimated carbon price liability by sector............................................................16
5 Conclusion.....................................................................................................17
Endnotes..........................................................................................................18

VI1

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

1

Introduction

The Paris Agreement is an international treaty that aims to combat climate change
and limit warming to well below 2°C, preferably to 1.5°C, as the present rate of global
warming stands at about 1.1°C.1
Physical risks, such as severe weather
events of the past year – fromheatwaves to floods and wildfires –will continue to rise if the long-term
objectives of the Paris Agreement
are not realized. However, the actionneeded to realize the objectives of
the Paris Agreement will require asignificant shift in policy paths at a
global scale. Such significant policychanges will introduce a rangeof unprecedented challenges for
economies, businesses and households.
Given the uncertainty of the impact
of climate change, the range ofrisks and opportunities and possible
policy paths that can be taken by
governments worldwide, it is importantthat businesses formulate long-term
strategies as the world transitions
toward a green economy. As part ofthis, businesses need to take into
consideration a variety of possible
future scenarios to fully understandthe potential risks and opportunities.
Scenarios are not predictions but
potential future paths that are usefulto help evaluate possible future risks
and opportunities.

This report examines which sectors and countries pay a carbon price underalternative climate scenarios.2 Specifically, this report examines:3

1

Business-as-usual(BAU) scenario

This scenario assumes that policies
in place remain in place at theircurrent price and emissions coverage.
Additionally, this analysis assumes thatgoing forward sectors and countries
continue to decarbonize at rates seen
in recent years.

2

Low-carbon-economy(LCE) scenario

Estimated country-level
decarbonization paths assume global
net-zero carbon emissions by 2050.
The LCE scenario is assumed to beachieved via use of carbon pricing.

Components of this analysis include an overview of carbon pricing initiatives thatare currently in place and a possible path for carbon pricing under an LCE scenario.
This includes a description of the type of carbon price (i.e., carbon tax versus
cap-and-trade or emissions trading scheme (ETS)) as well as a description of thesectoral and overall coverage of the carbon pricing. Decarbonization rates underboth scenarios are also examined.
The scope of this analysis is the Group of Twenty (G20) and Organization for
Economic Cooperation and Development (OECD) countries.4 Together, these 46
countries account for more than 90% of world GDP, approximately 80% of world
population and above 80% of world carbon emissions.5
While this analysis provides a general overview of carbon pricing, businesses
should consider undertaking more detailed analyses that quantify the impacts fortheir specific company, sub-industry, suppliers, competitors and markets. This
information can be helpful when formulating long-term strategies as the worldtransitions toward a green economy as well as in discussions with stakeholders
and policymakers.

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

2

Primer on
carbon pricing

Key insights• Putting a price on carbon isviewed by many as a relatively
easy and effective tool for
lowering carbon emissions.
Carbon pricing raises therelative cost of carbon-intensive
commodities and services
compared to other, less carbonintensive goods and services.
Businesses and consumers adapt
by making fewer carbon-intensive
purchases, hence reducing carbon
emissions overall.6• Regardless of who would be
required, statutorily, to remit
the price on carbon, nearly all
businesses would be affectedby a carbon price. A price would
give rise to additional direct andindirect business costs, withemissions-intensive sectors
incurring more of the former andother sectors more of the latter.
• Direct impacts are the costs thatthe carbon price would impose on
carbon-emitting sectors. Indirect
impacts include increased prices
for goods and services purchasedfrom other businesses due tothose supplier businesses being
subject to a carbon price.
• Because it is challenging topredict climate-related risks
and opportunities, scenario
analysis can be a useful tool forassessing the potential rangeof climate change implications.
Businesses, for example, canuse it to inform investors andstakeholders about how theorganization is positioning itself
in light of climate-related risks
and opportunities.

Two commonly used methods for implementing carbon pricing are:1

Setting a price on carbon
emissions and allowing thequantity of carbon emissions toadjust (i.e., a carbon tax).

2

Limiting the quantity of carbon
emissions and allowing the priceto adjust (i.e., a cap-and-tradesystem or ETS).72

3

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Regardless of who would be required
to remit the price on carbon, nearly
all businesses would be affectedby a carbon price. A carbon pricewould give rise to additional direct
and indirect business costs, withemissions-intensive sectors incurring
more of the former and other sectors
more of the latter.
Direct impacts are the costs thatthe carbon price would impose on
carbon-emitting sectors.8 Indirect
impacts include increased prices forgoods and services purchased fromother businesses due to those supplierbusinesses being subject to a carbon
price. Sectors that are not directly
subject to the carbon price may still
experience potentially significant
overall cost increases if they rely
heavily on inputs that use emissionsintensive production processes. As
such, businesses across all sectors
need to be informed and participate in
the conversation as any debate overcarbon pricing unfolds.9

Design considerations
When designing a carbon pricing policy, key points to consider include:

1
2
3
4
5

Where to levy the tax: Whether the carbon price should be levied on
stationary sources, mobile sources or both. Stationary sources of carbon
include facilities, such as factories and plants, while mobile sources include
motor and off-road vehicles and engines.
The initial carbon price and the rate by which it increases over time:
Examples of price escalation include increasing the price by a fixed dollar
amount, a fixed dollar amount and an adjustment for inflation and a percent
increase with an inflation adjustment.
At what stage in the energy supply chain to apply the tax (e.g., upstream
versus downstream): Generally, the simplest administrative point at
which to levy a carbon price is at the source of the energy supply. Thisis because there are fewer entities covering a large portion of carbon
emissions sources.
How to account for differences in carbon pricing regime obligations
across the globe: This requires a border adjustment or other mechanisms
to account for the carbon price on domestic products relative to competingproducts from other countries with different decarbonization regimes. Thiscan be achieved through taxing imports and subsidizing exports.
How to use the revenue generated: A key determinant of the long-run
economic impact of a carbon price is the use of the revenue generated.
A carbon price can be pro-growth (excluding the benefits of mitigating
the physical impacts of climate change) depending on how the revenue itraises is used. This could occur, for instance, if the revenue raised is used
for investment in productivity enhancing public infrastructure or to reduce
capital taxes. In contrast, rebating the revenue to households would offset
the impact of the carbon price on household income but would generally
not be a pro-growth policy (excluding the benefits of mitigating the physicalimpacts of climate change).10

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Scenario analysis
Because it is challenging to predict the magnitude of climate-related risks andopportunities, scenario analysis can be a useful tool for assessing the potential
range of climate change implications. Businesses, for example, can use it to
inform investors and stakeholders about how the organization is positioning itself
in light of climate-related risks and opportunities.
It is good practice to use scenarios in larger sets to contrast different futuresand choices. This analysis considers two scenarios (i.e., BAU and LCE) at both
extremes so that businesses can understand the likely range in potential futures.11
A BAU scenario is a high-emissions scenario that is generally representative of
current levels of action regarding decarbonization. In this scenario, physical risks
are more pronounced, because emissions are only moderately reduced and theeffects of climate change continue an upward trajectory. This includes increased
acute physical risks such as floods, hurricanes and wildfires, as well as chronic
physical risks such as sea-level rise.
An LCE scenario is a low-emissions scenario that is generally representative ofa shift toward decarbonization and climate change mitigation. In this scenario,transition risks are more pronounced because policies will necessarily have amore pronounced impact.12 These risks include increased carbon pricing andregulation, higher stakeholder pressure regarding environmental, social andgovernance (ESG) performance and rapid technological innovation to decarbonize
sectors, among others.
The cost of transition can be significantly reduced when netted against
the physical risks of climate change. Additionally, when a business delays
decarbonization efforts it can increase transition costs.
While changes associated with a transition to a lower-carbon economy canpresent significant risks, they can also create opportunities. Opportunities
associated with climate change will differ depending on a business’s geography,
market and sector. Resource efficiency, cost savings, adopting and using lowemission energy sources, creating new goods and services and building more
resilient supply chains are some of the opportunities that can arise from efforts
to mitigate climate change. This value-led sustainability approach can generate acompetitive advantage in the market.

4

5

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

3

Carbon pricing undera BAU scenario

Key insights• In a BAU scenario, existing policies are assumed toremain in place at their current price and emissions
coverage and future decarbonization is assumed tofollow recent trends. Scenarios are not predictions but
potential future paths that are useful to help evaluate
possible future risks and opportunities.
• Across G20 and OECD countries, the average
headline carbon price is $47/ton whereas the average
effective carbon price is $23/ton. Similarly, themedian headline price is $50/ton, and the median

effective carbon price is $25/ton. There are only
three countries with an effective carbon price above$50/ton. In contrast, there are 23 countries with aheadline carbon price above $50/ton.
• Emissions coverage varies significantly by sector
across G20 and OECD countries. Across all sectors,
30% of emissions are subject to a carbon price. This ishighest in electricity (56%) followed by road transport(22%), industry (18%), buildings (13%), agriculture
and fisheries (12%) and off-road transport (11%).

In a BAU scenario, existing policies are assumed to remain in place at their current price and emissions coverage and futuredecarbonization is assumed to follow recent trends. It is a high-emissions scenario in which physical risks are more pronounced
and transition risks are less pronounced.13

Current carbon pricing regimes
Currently, there are 63 implemented carbon pricing regimesthat span 36 national jurisdictions and 37 subnational
jurisdictions across G20 and OECD countries.14 These areroughly 93% of the 68 carbon pricing regimes implemented
throughout the world.
As shown in Figure 1, there are 36 carbon taxes within G20
and OECD countries covering 24 national jurisdictions andeight subnational jurisdictions. The highest carbon tax inplace is in Sweden ($130/tCO2e).

Among G20 and OECD countries, there are 31 cap-andtrade or ETS regimes covering 31 national jurisdictions and
32 subnational jurisdictions. The highest ETS is the EU ETS($87/ tCO2e).

Carbon pricing under a BAU scenario

Figure 1. Global carbon pricing, 2022

Carbon tax
Emissions trading system (ETS)
Undecided
Implemented or scheduled
for implementation
Under consideration
No carbon regime in place

Source: The World Bank.

6

7

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Headline carbon prices
A headline carbon price is the price charged for each ton ofcarbon subject to a carbon price. For example, if a country
has a carbon price of $100/ton but only 10% of the country’s
carbon emissions are subject to a carbon price, the headline
price is still $100/ton.15 That is, there is no adjustment for theshare of a country’s emissions that are priced (see effective
carbon prices below). Figure 2 displays the distribution ofheadline carbon prices in G20 and OECD countries in 2022.
Values here and throughout the report are US$2022.

The simple average and median headline carbon prices are$47/ton and $50/ton, respectively. The weighted average
headline carbon price is $25/ton. There are nine countries
with a headline carbon price of $0/ton and 23 countries witha headline carbon price above $50/ton. The remaining 14
countries have a headline carbon price between $0/ton and$50/ton.

Figure 2. Distribution of headline carbon prices in G20 and OECD
countries, 2022
Count of countries by headline carbon price

17

$47

Simple average$25

Weighted average

9
7

$0

>$0–$101

1$10–$20$20–$302$30–$403$50–$60

4
2$50–$60$60–$70 Above $70

Note: Analysis includes all G20 and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

$50
Median

Carbon pricing under a BAU scenario

Effective carbon prices
An effective carbon price is the average price per ton ofcarbon across a country’s total carbon emissions (i.e., notjust carbon emissions subject to a price). For example, if acountry has a $100/ton carbon price but only 10% of thecountry’s emissions are subject to a price, the effective
carbon price is $10/ton (=$100/ton x 10%).
Effective carbon prices in G20 and OECD countries for2022 are shown in Figure 3. Effective carbon prices arealways equal to or less than headline carbon prices. The
simple average headline carbon price is $47/ton whereas

the average effective carbon price is $23/ton. Similarly,
the median headline carbon price is $50/ton whereas themedian effective carbon price is $25/ton. The weighted
average headline carbon price is $25/ton whereas theweighted average effective carbon price is $7/ton. There are
only three countries with an effective carbon price above$50/ton (Figure 3). In contrast, there are 23 countries witha headline carbon price above $50/ton (Figure 2).

Figure 3. Distribution of effective carbon prices in G20 and OECD
countries, 2022
Count of countries by effective carbon price9

Simple average$7

Weighted average

10
8

8
5
3

$0

>$0–$10$23$10–$202$20–$30$30–$40$50–$60$50–$60

01$60–$70 Above $70

Note: Analysis includes all G20 and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

$25
Median8

9

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Carbon pricing by sector
Carbon emissions coverage varies
significantly by sector across G20 andOECD countries. The share of carbon
emissions across those countries
divides into six key sectors (as identified
by the OECD): (1) agricultures andfisheries, (2) buildings, (3) electricity,(4) industry, (5) off-road transport and(6) road transport (Figure 4).16
Across these sectors, 30% of emissions
are subject to a carbon price in G20 andOECD countries. The share of emissions
subject to a carbon price is highest for
the electricity sector (56%) followed
by road transport (22%), industry(18%), buildings (13%), agriculture
and fisheries (12%) and off-roadtransport (11%).

Figure 5 displays the weighted average
effective carbon price for each of thesesix sectors. The weighted averagecarbon price across all sectors is $7/ton.
The highest weighted average effective
carbon price is in electricity ($11/ton)followed by industry ($7/ton), roadtransport ($6/ton), off-road transport($5/ton), buildings ($4/ton) andagriculture and fisheries ($2/ton).

Figure 4. Share of emissions covered across G20 and OECD
countries in 2022, by sector
56%

30%
22%
Electricity

Roadtransport

18%
Industry

13%

12%

11%

Buildings

Agriculture
and fisheries

Off-roadtransport

All sectors

Note: Analysis includes all G20 and OECD countries. Figures are rounded.
Source: EY analysis.

Figure 5. Weighted average effective carbon price in G20 and OECD
countries by sector, 2022
$11
$7Electricity

Industry

$7
$6

$5

$4

Road
Buildings
Off-road transporttransport

Note: Analysis includes all G20 and OECD countries. Figures are rounded.
Source: EY analysis.

$2Agriculture
and fisheries

All sectors

Carbon pricing under a BAU scenario

Decarbonization pathway
Decarbonization pathways show the extent towhich emissions intensity (i.e., emissions perunit of output) change relative to their level in
2022. The BAU scenario assumes that, going
forward, sectors and countries generally continue
to decarbonize at rates that follow recent trends.
The BAU decarbonization pathways are displayedin Figure 6 for G20 and OECD countries overall, as
well as for the BRIC countries, the EU-12, North
America and other G20 and OECD countries.17
Across all G20 and OECD countries, the carbon
intensity declines from 1.0 in 2022 to 0.46 by
2050 (i.e., 2050 carbon intensity declines to 46%
of the level of carbon intensity of 2022).
Across BRIC countries, the carbon intensity
declines from 1.0 in 2022 to 0.42 by 2050 (i.e.,the 2050 carbon intensity declines to 42% of thelevel of carbon intensity of 2022). Across EU-12
countries, the carbon intensity declines from 1.0
in 2022 to 0.53 in 2050 (i.e., the 2050 carbon
intensity declines to 53% of the level of carbon
intensity of 2022). Carbon intensity across North
America declines from 1.0 in 2022 to 0.48 in
2050 (i.e., the 2050 carbon intensity declines
to 48% of the level of carbon intensity of 2022).
Across other G20 and OECD countries (i.e., all G20
and OECD countries not part of BRIC, the EU-12
and North America), the carbon intensity declines
from 1.0 in 2022 to 0.54 (i.e., the 2050 carbon
intensity declines to 54% of the level of carbon
intensity in 2050). These pathways vary by sector,
country and region.

Figure 6. BAU decarbonization pathways by country and regions
1.00

0.70

Other OECD and
G20 countries

0.84

0.54

EU-12

0.83

0.53

0.78

0.48

OECD and G20
countries overall

0.77

0.46

BRIC countries

0.74

0.42

2030

2050

North America
0.40

0.10

2022

2030

2040

2050

Note: Scenarios are not predictions but potential future paths that are useful to help evaluate possible future risks and opportunities. This
scenario assumes that, going forward, sectors and countries continue to decarbonize at rates following recent trends. Figures are rounded.
Source: EY analysis.

10

11

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

4

Carbon pricing underan LCE scenario

Key insights• This analysis includes a range for the effective
carbon price necessary to achieve net-zero carbon
emissions by 2050. This range, estimated by threeprominent integrated assessment models, highlights
both the significant uncertainty surrounding thenecessary carbon price as well as the significant
order of magnitude of the necessary carbon price.
In particular, by 2050, the carbon price in the LCE
scenario ranges between $504 and $1095. This
compares to the BAU scenario carbon price ofapproximately $8 in 2050. The average of the three
integrated assessment model carbon prices – which
is used in estimates throughout this section – grows
from $254 in 2030 to $440 in 2040 and $800 in
2050.
• Across all G20 and OECD countries, the carbon
intensity declines from 1.0 in 2022 to 0.45 by 2030

in the LCE scenario (relative to 0.77 by 2030 underthe BAU scenario) and 0.02 by 2050 in the LCE
scenario (relative to 0.46 by 2050 under the BAU
scenario). That is, under the LCE scenario, the 2050
carbon intensity declines to 2% of the level of carbon
intensity of 2022 whereas under the BAU scenario
the 2050 carbon intensity declines to 46% of the levelof carbon intensity of 2022.
• Across all G20 and OECD countries, by 2030, theestimated carbon price liability under an LCE scenario
would be 19 times the estimated carbon price liability
under a BAU scenario. By 2050, the estimated carbon
price liability under an LCE scenario would decline to
five times the estimated carbon price liability undera BAU scenario. This reflects the net impact of ahigher carbon price (increases liability) and higher
decarbonization (decreases liability).

Estimated country-level decarbonization paths assume global net-zero carbon emissions by 2050. The LCE scenario isassumed to be achieved via use of carbon pricing. It is a low emissions scenario where physical risks are less pronounced andtransition risks are more pronounced. Scenarios are not predictions but potential future paths that are useful to help evaluate
possible future risks and opportunities.

Carbon pricing under an LCE scenario

Effective carbon prices
A comparison of the weighted average effective
carbon price across G20 and OECD countries
under a BAU and LCE scenario is shown in Figure
7. This analysis includes a range for the effective
carbon price necessary to achieve net-zero carbon
emissions by 2050. This range, estimated bythree prominent integrated assessment models,
highlights both the significant uncertainty
surrounding the necessary carbon price as well as

the significant order of magnitude of the necessary
carbon price.18 In particular, by 2050, the carbon
price in the LCE scenario ranges between $504
and $1095. This compares to the BAU scenario
carbon price of approximately $8 in 2050. The
average of the three integrated assessment
model carbon prices – which is used in estimates
throughout this section – increases from $254 in
2030 to $440 in 2040 and $800 in 2050.

Figure 7. Effective carbon prices, BAU versus LCE$1,200$1,095$1,000Range of priceunder LCE

$800

$800

$600

$400

$504

$200

0

$8

2022

2025

2030

2035

BAU

2040

2045

2050

LCE

Note: Analysis includes all G20 and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

12

13

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Decarbonization pathway
Decarbonization pathways show theextent to which emissions intensity(i.e., emissions per unit of output) willchange relative to their level in 2022.
This scenario assumes that, going
forward, countries and sectors will
decarbonize at higher rates relative tothe BAU scenario to achieve net-zerocarbon emissions by 2050. This is,of course, only one potential future
pathway for decarbonization.
The LCE decarbonization pathways are
displayed in Figure 8 for all G20 andOECD countries, as well as for the BRIC
countries, the EU-12, North America
and other G20 and OECD countries.

• Across all G20 and OECD countries, the carbon intensity declines from 1.0 in
2022 to 0.45 by 2030 (relative to 0.77 by 2030 under the BAU scenario) and
0.02 by 2050 (relative to 0.46 by 2050 under the BAU scenario). That is, underan LCE scenario, the 2050 carbon intensity declines to 2% of the level of carbon
intensity of 2022, whereas under a BAU scenario, the 2050 carbon intensity
declines to 46% of the level of carbon intensity of 2022.
• Across BRIC countries, the carbon intensity declines from 1.0 in 2022 to 0.40
by 2030 (relative to 0.74 by 2030 under the BAU scenario) and to 0.02 by 2050
(relative to 0.42 under the BAU scenario).
• Carbon intensity across EU-12 declines from 1.0 in 2022 to 0.53 in 2030
(relative to 0.83 by 2030 under a BAU scenario) and to 0.01 by 2050 (relative to
0.53 under the BAU scenario).
• Carbon intensity across North America declines from 1.0 in 2022 to 0.49 in
2030 (relative to 0.78 by 2030 under the BAU scenario) and to 0.02 by 2050
(relative to 0.48 under the BAU scenario).
• Across other G20 and OECD countries (i.e., all G20 and OECD countries not partof BRIC, the EU-12 and North America), the carbon intensity declines from 1.0 in
2022 to about 0.53 by 2030 (relative to 0.83 by 2030 under the BAU scenario)
and to 0.05 by 2050 (relative to 0.54 under the BAU scenario).

Carbon pricing under an LCE scenario

These pathways vary by sector, country and region. By 2050, each of these four country groupings will
have achieved, or would be close to achieving, net-zero carbon emissions under the LCE scenario.

Figure 8. Decarbonization pathways by country and regions, BAU versus LCE
1.00

0.70

0.40

0.10
2022

2025

2030

2035

BAU: OECD and G20 countries overall

0.77

LCE: OECD and G20 countries overall

0.45

BRIC

0.40

EU-12

0.53

North America

0.49

Other G20 and OECD countries

0.53

2030

2040

2045

0.46

0.02
0.02
0.01
0.02
0.05

2050

Note: Scenarios are not predictions but potential future paths that are useful to help evaluate possible future risks andopportunities. This scenario assumes that countries adopt aggressive decarbonization paths to achieve global net-zero carbon
emissions by 2050. Figures are rounded.
Source: EY analysis.

2050

14

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

Estimated carbon price liability
Figure 9 displays the estimated carbon price liability across G20 and OECD countries from 2022 through 2050 under the LCE
scenario. Results are also displayed for the BRIC countries, the EU-12, North America and other G20 and OECD countries. Forease of interpretation, all results are scaled to the size of the world economy in 2022.
• Across all G20 and OECD countries, by 2030, the estimatedcarbon price liability under an LCE scenario would be 19
times the estimated carbon price liability under a BAU
scenario. By 2050, the estimated carbon price liability
under an LCE scenario would decline to five times theestimated carbon price liability under a BAU scenario. Thischange is the net impact of a higher carbon price (increases
liability) and higher decarbonization (decreases liability).
• For countries in the EU-12, by 2030, the estimated carbon
price liability under an LCE scenario would be four times
the estimated carbon price liability under a BAU scenario.
By 2050, the estimated carbon price liability under an LCE
scenario would be approximately zero.
• For BRIC countries, as of 2022, the estimated carbon
price liability under an LCE scenario would be 63 times theestimated carbon price liability under a BAU scenario by2030. The estimated carbon price liability under an LCE
scenario would decline to 17 times the estimated carbon
price liability under a BAU scenario by 2050.
• For countries in North America, the estimated carbon
price liability under an LCE scenario would be 38 times theestimated carbon price liability under a BAU scenario by2030. The estimated carbon price liability under an LCE
scenario would decline to seven times the estimated carbon
price liability under a BAU scenario by 2050.
• For other G20 and OECD countries, by 2030, the estimatedcarbon price liability under an LCE scenario would be 17
times the estimated carbon price liability under a BAU
scenario. By 2050, the estimated carbon price liability
under an LCE scenario would decline to seven times theestimated carbon price liability under a BAU scenario.

Figure 9. Carbon price liability 2022-2050 BAU versus LCE
80x

LCE liability / BAU liability

15

G20 and OECD countries overall
BRIC
EU-12
North America
Other G20 and OECD countries

60x

40x

20x

0

2022

2025

2030

2035

2040

2045

2050

Note: Results are scaled to the size of the world economy in 2022. Analysis includes all G20 and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

Carbon pricing under an LCE scenario

Estimated carbon price liability by sector
The estimated carbon price liability across six key sectors – (1) agriculture and fisheries, (2) buildings, (3) electricity, (4)industry, (5) off-road transport and (6) road transport – from 2022 to 2050 under the LCE scenario is displayed in Figure 10.19• Across all six sectors, by 2030, the estimated carbon
price liability under an LCE scenario would be 19 times theestimated carbon price liability under a BAU scenario. By
2050, the estimated carbon price liability under an LCE
scenario would decline to five times the estimated carbon
price liability under a BAU scenario.
• For the electricity sector, by 2030, the estimated carbon
price liability under an LCE scenario would be eight times
the estimated carbon price liability under a BAU scenario.
By 2050, the estimated carbon price liability under an LCE
and BAU scenarios would be approximately equivalent.
• For the industrial sector, by 2030, the estimated carbon
price liability under an LCE scenario would be 23 times theestimated carbon price liability under a BAU scenario. By
2050, the estimated carbon price liability under an LCE
scenario would decline to six times the estimated carbon
price liability under a BAU scenario.
• For the road transport sector, by 2030, the estimatedcarbon price liability under an LCE scenario would be 37
times the estimated carbon price liability under a BAU
scenario. By 2050, the estimated carbon price liability

under an LCE scenario would decline to 16 times theestimated carbon price liability under a BAU scenario.
• For the buildings sector, by 2030, the estimated carbon
price liability under an LCE scenario would be 43 times theestimated carbon price liability under a BAU scenario. By
2050, the estimated carbon price liability under an LCE
scenario would decline to 10 times the estimated carbon
price liability under a BAU scenario.
• For the off-road transport sector, by 2030, the estimatedcarbon price liability under an LCE scenario would be 42
times the estimated carbon price liability under a BAU
scenario. By 2050, the estimated carbon price liability
under an LCE scenario would decline to 16 times theestimated carbon price liability under a BAU scenario.
• For the agriculture and fisheries sector, by 2030, theestimated carbon price liability under an LCE scenario
would be 68 times the estimated carbon price liability
under a BAU scenario. By 2050, the estimated carbon priceliability under an LCE scenario would decline to 14 times
the estimated carbon price liability under a BAU scenario.

Figure 10. Carbon price liability by sectors 2022-2050, BAU versus LCE
Total

80x

Buildings
Off-road transport

LCE liability/
BAU liability

60xRoad transport
Industry

40x

Agriculture and fisheries
Electricity

20x
0

2022

2025

2030

2035

2040

2045

2050

Note: Results are scaled to the size of the world economy in 2022. Analysis includes all G20 and OECD countries. Values are US$2022. Figures are rounded.
Source: EY analysis.

16

17

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

5

Conclusion

As climate policy proposals evolve and more governments develop or sign onto
plans that may involve carbon pricing, businesses need to determine what thosepolicies could mean for their industries, companies, competitors and consumers.
They should be cognizant of whether a carbon price proposal grants particularindustries or mitigation technologies assistance, free allowances or exemptions,as well as how the revenue raised from a carbon price would be used. Additionally,
because it is challenging to predict climate-related risks and opportunities, scenario
analysis should be used for assessing the potential range of climate change
implications. Businesses can use scenario analysis to then inform investors andstakeholders about how the organization is positioning itself in light of climaterelated risks and opportunities.

18

Endnotes1

Climate Change 2021: The Physical Science Basis Summary for Policy
Makers. IPCC, 2021.

2

This analysis looks at where the carbon price is being applied and at
what level. This statutory incidence differs from an analysis of theeconomic incidence of these carbon prices. The cost increases due tothe carbon price could be passed forward to consumers or, to someextent, the burden may fall on labor (via lower wages) or capital (via
reduced profits).

3

Decarbonization paths are calculated using emissions, energy andeconomic data from 3 prominent Integrated Assessment Models(IAMs): (1) GCAM, (2) MESSAGEix-GLOBIOM and (3) REMINDMAgPIE.
IAMs combine macroeconomic, agriculture, land use, energy, waterand climate systems into a common framework that enables theanalysis of their effects on the economy and impacts on the climate.
Under the BAU scenario estimated decarbonization paths assume
that existing climate policies remain in place and that there is no
strengthening of these policies. Under the LCE scenario the estimateddecarbonization paths assume global net-zero carbon emissions
by 2050. Countries with a clear commitment to a specific net-zeropolicy target are assumed meet their target. These decarbonization
paths are based on modeling from the Network for Greening the
Financial System (NGFS), which is a network of more than 100 central
banks and financial supervisors aiming to help strengthen the global
response to meeting the goals of the Paris agreement.
GCAM is a model based on the interaction between the energy,
water, agriculture, land use and economy systems. Within GCAM
agents use information from relevant data to make decisions aboutallocation of resources, a solution for market-equilibrium is found andagents continue making decisions in each period as they gain new
information. The effects of climate change are included in the marketequilibrium solution.
MESSAGEix-GLOBIOM, is made up of MESSAGEix (Model for Energy
Supply Strategy Alternatives and their General Environmental
Impact), which is an energy model and GLOBIOM (Global Recursive
Dynamic Partial Equilibrium Model), which is a land use model. The
MESSAGEix optimizes land use data from GLOBIOM and feeds it
into MAGIC (Model for the Assessment of Greenhouse Gas Induced
Climate Change), which provides an estimate for projected climate
implications.
REMIND-MAgPIE, is made up of the REMIND (Regional Model of
Investments and Development) model, which optimizes energy andeconomic investments in the economy to maximize welfare and
MAgPIE (Model of Agricultural Production and its Impacts on theEnvironment), which is a land use and agricultural emissions model.
REMINDMAgPIE runs a subset of scenarios with implementationof internalized physical risk damage and has dynamics within andbetween water, air pollution, land use, energy, health, economy andclimate systems.
4OECD and G20 countries are: Argentina, Australia, Austria, Belgium,
Brazil, Canada, Chile, China, Colombia, Costa Rica, Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary,
Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Republic ofKorea, Latvia, Lithuania, Luxembourg, Mexico, Netherlands, New
Zealand, Norway, Poland, Portugal, Russia, Saudi Arabia, Slovak
Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey,
the United Kingdom, the United States. The European Union, which
is a member of the G20, is excluded from the analysis because it is asupranational political and economic union.

5

Estimates on GDP and population use World Bank data. Estimateson emissions use the OECD dataset on Effective Carbon Rates 2021.
Carbon emissions here and throughout the report refers to emissions
from energy use. Carbon emissions do not include all greenhouse gas(GHG) emissions.

6

Of course, nearly all goods and services have at least someembedded carbon emissions in them somewhere in their production.
For example, even if a particular company producing a good orservice has no direct carbon emissions, the goods and services thatcompanies purchase from their suppliers or, in turn, the goods andservices their suppliers purchase from other companies may haveresulted in carbon being emitted when being produced.

7

From a stylized modeling perspective, an ETS and a carbon tax haveequivalent effects when the ETS allowances are sold. However, realworld considerations such as implementation and administrationdiffer between the policies. See, for example, Avi-Yonah, R. S., &Uhlmann, D. M. (2009). Combating global climate change: Why acarbon tax is a better response to global warming than cap and trade.
Stan. Envtl. LJ, 28, 3.

8As discussed later in this report, there are, of course, many design
choices when implementing a carbon price. One of these design
choices is the stage of the energy supply chain at which to apply theprice (e.g., upstream versus downstream).

9See, for example, EY. (2020). How key industries would fare under acarbon tax. https://www.ey.com/en_us/tax/how-key-industries-wouldfare-under-a-carbon-tax

10See, for example: EY. (2018). Carbon regulations vs. a carbon tax: A
comparison of the macroeconomic impacts, Prepared for the Alliance
for Market Solutions. Also See EY. (2022). Macroeconomic impactsof carbon pricing relative to a higher corporate income tax rate,
Prepared for the Alliance for Market Solutions.

19

Who pays the tax: carbon pricing by sector and country under alternative climate scenarios

11

12

The Representative Concentration Pathway (RCP) mostsimilar to the BAU scenario is RCP6.0 and the RCP
most similar to the LCE scenario is RCP2.6. RCPs fix
the GHG concentration in the atmosphere and analyze
the resulting changes in global temperatures at various
future points relative to pre-industrial levels. See
Intergovernmental Panel on Climate Change (IPCC),“Towards new Scenarios for Analysis of Emissions,
Climate Change, Impacts, and Response Strategies,”(accessed https://archive.ipcc.ch/pdf/supporting-material/
expert-meeting-report-scenarios.pdf, Sept 7 2022).
Transition risks can be grouped into the following
categories: Policy and legal risk (carbon pricing andreporting obligations, mandates on and regulation ofexisting products and services and exposure to litigation),technology risk (substitution of existing products andservices with lower emissions options and unsuccessful
investment in new technologies), market risk (changing
consumer behavior, uncertainty through market signals
and increased cost of raw materials) and reputation risk
(shifts in consumer preferences, increased stakeholder
concern and stigmatization of sector). See, for example,
Task Force on Climate-related Financial Disclosures, Final
Report: Recommendations of the Task Force on Climaterelated Financial Disclosures,2017, (accessed https://
assets.bbhub.io/company/sites/60/2020/10/FINAL-TCFDTechnical-Supplement-062917.pdf, Sept 5 2022).

13

The scope of this analysis is limited to carbon emissions
from energy use and emissions from combustion of
biomass. Other greenhouse gases are not within thescope of this analysis.

14

Headline carbon prices in 2022 are sourced from theWorld Bank and reflect carbon prices in the first trimesterof 2022 for each carbon pricing initiative. These data,
especially headline carbon prices for ETS initiatives,
frequently change. These data were then combined with
OECD data on covered emissions by sector by country
generally following the OECD effective carbon rate
methodology. These data also include information onother factors that can impact effective carbon pries suchas exemptions and rate reductions for each sector ineach country. Adjustments were generally not made forfree allowances. Adjustments were made to update dated
information or to include information when data were
unavailable from the World Bank and OECD. Estimates are
subject to revision as more recent data become available.
Estimates are limited by available public information.

15

For countries with more than one carbon pricing initiative
the headline carbon price is presented as the weighted
average by covered emissions.

16

These sectors are defined by the OECD as follows: (1)Agriculture and fisheries includes “all primary energy
used in agriculture, fisheries and forestry for activities
other than electricity generation and transport”; (2)buildings include “all primary energy used by households,
commercial and public services for activities other thanelectricity generation and transport”; (3) electricity
sector coverage includes “all primary energy used togenerate electricity (excluding auto-producer electricity
plants which are assigned to industry)”; (4) industry
includes “all primary energy used in industrial facilities(including district heating and auto-producer electricity
plants)”; (5) off-road transport sector refers to “allprimary energy used in off-road transport (including
pipelines, rail transport, aviation and maritime
transport)”; and (6) road transport sector includes “allprimary energy used in road transport.”

17

BRIC countries include Brazil, Russia, India, and China.
The EU-12 includes Belgium, Denmark, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, and the United Kingdom. North America
includes Canada, Mexico, and the United States. Other
OECD and G20 countries include Argentina, Australia,
Austria, Chile, Colombia, Costa Rica, Czech Republic,
Estonia, Finland, Hungary, Iceland, Indonesia, Israel,
Japan, Republic of Korea, Latvia, Lithuania, New Zealand,
Norway, Poland, Saudi Arabia, Slovak Republic, Slovenia,
South Africa, Sweden, Switzerland, and Turkey.

18

See endnote 3 for more information on the methodology
and the three integrated assessment models.

19

Beyond 2022, this analysis assumes a uniform carbon
price across all sectors. A uniform carbon price would
leverage the knowledge and behavior of consumers
and producers to find where it is least costly to
reduce emissions, as compared to differing prices bysector that can result in more costly ways to reducecarbon emissions.

Who pays the tax: Carbon pricing by sector and country under alternative climate scenarios

Carbon pricing

20

Contacts
Dr. Brandon Pizzola

EY Quantitative Economics and Statistics (QUEST)
brandon.pizzola@ey.com

Cathy Koch

EY Global Sustainability Tax Leader
cathy.koch@ey.com

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