Contribution of carbon pricing to meeting a mid-century net zero target
Creators: name: Haites, Erik
name: Bertoldi, Paolo
name: König, Michael
name: Bataille, Christopher
name: Creutzig, Felix
name: Dasgupta, Dipak
name: du Can, Stéphane de la rue
name: Khennas, Smail
name: Kim, Yong-Gun
name: Nilsson, Lars J.
name: Roy, Joyashree
name: Sari, Agus
Publisher: name: Taylor & Francis
Year: 2023
Subjects: subject: Biophysics
subject: Medicine
subject: Pharmacology
subject: Biotechnology
subject: 59999 Environmental Sciences not elsewhere classified
subject: FOS: Earth and related environmental sciences
subject: 39999 Chemical Sciences not elsewhere classified
subject: FOS: Chemical sciences
subject: Sociology
subject: FOS: Sociology
subject: Cancer
subject: Science Policy
subject: 110309 Infectious Diseases
subject: FOS: Health sciences

description: A mid-century net zero target creates a challenge for reducing the emissions of emissions-intensive, trade-exposed sectors with high cost mitigation options. These sectors include aluminium, cement, chemicals, iron and steel, lime, pulp and paper and petroleum refining. Available studies agree that decarbonization of these sectors is possible by mid-century if more ambitious policies are implemented soon. Existing carbon pricing policies have had limited impact on the emissions of these sectors because their marginal abatement costs almost always exceed the tax rate or allowance price. But emissions trading systems with free allowance allocations to emissions-intensive, trade-exposed sectors have minimized the adverse economic impacts and associated leakage. Internationally coordinated policies are unlikely, so implementing more ambitious policies creates a risk of leakage. This paper presents policy packages a country can implement to accelerate emission reduction by these sectors with minimal risk of leakage. To comply with international trade law the policy packages differ for producers whose goods compete with imports in the domestic market and producers whose goods are exported. Carbon pricing is a critical component of each package due its ability to minimize the risk of adverse economic impacts on domestic industry, support innovation and generate revenue. The revenue can be used to assist groups adversely impacted by the domestic price and production changes due to carbon pricing and to build public support for the policies. <b>Key policy insights:</b>A country with a mid-century net zero GHG emission target likely will need to implement more ambitious mitigation policies soon for emission-intensive sectors such as aluminium, cement, chemicals, iron and steel, lime, pulp and paper and petroleum refining.More ambitious mitigation policies are likely to vary by country and be implemented at different times, creating a risk of leakage due to industrial production shifts to other jurisdictions.More ambitious mitigation policy packages, compatible with international trade law, that a country can implement to reduce emissions from these sectors with minimal risk of leakage are available but differ for producers whose goods compete with imports in the domestic market and those whose goods are exported.Carbon pricing is a critical component of each package due its ability to minimize the risk of adverse economic impacts on domestic producers, support innovation and generate revenue. A country with a mid-century net zero GHG emission target likely will need to implement more ambitious mitigation policies soon for emission-intensive sectors such as aluminium, cement, chemicals, iron and steel, lime, pulp and paper and petroleum refining. More ambitious mitigation policies are likely to vary by country and be implemented at different times, creating a risk of leakage due to industrial production shifts to other jurisdictions. More ambitious mitigation policy packages, compatible with international trade law, that a country can implement to reduce emissions from these sectors with minimal risk of leakage are available but differ for producers whose goods compete with imports in the domestic market and those whose goods are exported. Carbon pricing is a critical component of each package due its ability to minimize the risk of adverse economic impacts on domestic producers, support innovation and generate revenue.