State and Trends of Carbon Pricing 2019 Washington DC, June 2019 State and Trends of Carbon Pricing 2019 Washington DC, June 2019 The preparation of this report was led by the World Bank, with the support of Navigant and with contributions from the International Carbon Action Partnership. The World Bank team responsible for drafting and reviewing this report was composed of Céline Ramstein, Goran Dominioni and Sanaz Ettehad. The Navigant team included Long Lam, Maurice Quant, Jialiang Zhang, Louis Mark, Sam Nierop, Tom Berg, Paige Leuschner, Cara Merusi, Noémie Klein and Ian Trim. The report benefited greatly from the valuable contributions and perspectives of our colleagues in the climate and carbon finance community, who have ensured the quality and clarity of this report: Johannes Ackva, William Acworth, Erik van Andel, Nicolette Bartlett, Daron Bedrosyan, Daniel Besley, Tanguy de Bienassis, Simon Black, Elliot Bourgeault, David Brock, Nigel Burns, Dallas Burtraw, Mercedita Garcia Cano, Marcos Castro Rodriguez, Chen Zhibin, Monica Crippa, Kurt Van Dender, Timila Dhakhwa, Ana Maria Dias, Chandni Dinakaran, Luisa Dressler, Assia Elgouacem, Dominik Englert, Thomas Erb, Víctor Escalona, Susana Escária, Eduardo Ferreira, Florens Flues, Moa Forstorp, Harikumar Gadde, Christophe de Gouvello, Stefany Gutu, Stephane Hallegatte, Dirk Heine, Dafei Huang, Marius Kaiser, Angela Churie Kallhauge, Junaed Khan, Seoyi Kim, Matt King, Lai Han, Liu Ying, Emídio Lopes, Vincent Marcus, Taisei Matsuki, Wataru Matsumura, Laura Merrill, Rachel Mok, Klaus Oppermann, Shibani Pandey, Ian Parry, Sébastien Postic, Neeraj Prasad, Venkata Putti, Barry Rabe, Jeanette Ramirez, Smita Rana, Suneira Rana, Stephanie Rogers, Germán Romero, Steven Rose, Isabel Saldarriaga Arango, Lourdes Sanchez, Marissa Santikarn, Chandra Shekhar Sinha, Jason James Smith, William Space, Sandhya Srinivasan, Kensuke Suda, Nuyi Tao, Erin Taylor, Jonas Teusch, Massamba Thioye, Michael Toman, John Ward, Peter Zapfel, Environment and Climate Change Canada, and Greenhouse Gas Inventory and Research Center of Korea. We also acknowledge support from the Carbon Pricing Leadership Coalition, the Partnership for Market Readiness, CDP, and the Institute for Climate Economics for the preparation of this report. © 2019 International Bank for Reconstruction Adaptations—If you create an adaptation of this work, and Development / The World Bank please add the following disclaimer along with the attribution: This is an adaptation of an original work by The 1818 H Street NW, Washington DC 20433 World Bank. Responsibility for the views and opinions expressed Telephone: 202-473-1000; Internet: www.worldbank.org in the adaptation rests solely with the author or authors of the adaptation and are not endorsed by The World Bank. Some rights reserved 1 2 3 4 22 21 20 19 Third-party content—The World Bank does not necessarily own each component of the content contained within the This work is a product of the staff of The World Bank with work. The World Bank therefore does not warrant that external contributions. 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License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. 3 Foreword Every year this report presents the latest developments in carbon pricing around the world. Every year the impacts of climate change feel more immediate and daunting, this year even more so than usual as extreme weather and numerous scientific reports have started screaming at us. Overall, while we see some encouraging trends, action on carbon pricing is nowhere near where it should be: it still covers only a small part of global emissions at prices too low to significantly reduce emissions. First, this report reveals a mixed bag. A growing number of jurisdictions are implementing or planning to implement a carbon tax or an emission trading system—a total of 57 initiatives compared to 51 in 2018 and this number is set to grow, according to countries’ climate pledges. Most of this action has taken place in the Americas, and particularly in Canada where the federal carbon pricing approach has prompted new initiatives at the provincial level. Important developments have also occurred in other parts of the world with new carbon taxes in Singapore and South Africa—the first carbon pricing instrument implemented in Africa—and new initiatives explored in Colombia, Mexico, the Netherlands, Senegal, Ukraine, and Vietnam. But is it enough? Here again, the evidence is clear. Only 20 percent of global GHG emissions are covered by a carbon price and less than 5 percent of those are currently priced at levels consistent with reaching the temperature goals of the Paris Agreement. Swift action is needed: carbon pricing is the most effective way to reduce emissions and all jurisdictions must go further and faster in using carbon pricing policies as part of their climate policy packages. Second, while the direction of travel seems clear, the implementation of carbon pricing mechanisms can sometimes be more difficult than anticipated. In the past year, we witnessed social unrest in part related to carbon pricing initiatives. These events highlight how critical—and often difficult—it is to gain and maintain public support for carbon pricing policies. Building on decades of experience in carbon pricing, we have come to learn the vital importance of taking a comprehensive approach. Carefully planning for the design and implementation of these policies entails, for example, including all stakeholders and having clear communication strategies in place early on that focus on local co-benefits, how the revenues will be used, and on measures that prevent adverse impacts falling on the poorest households. At the World Bank Group, we are supporting countries as they explore carbon pricing through our programs offering analytics, technical assistance, and fora to share their own experiences. Third, this year’s report goes beyond its traditional focus on explicit carbon pricing and, for the first time, also looks at implicit carbon pricing. Many countries are already implicitly pricing carbon through other policies, such as fuel taxes or fossil fuel subsidies reforms. Taking this wider view will allow us to obtain a more transparent view of the real price applied to carbon emissions, to utilize a wider portfolio of instruments to drive climate action, and to strengthen the ability to overcome implementation challenges. Going forward, we will continue to expand these analyses in order to provide a more comprehensive picture of, and advice on, countries’ efforts on carbon pricing and getting incentives right to reduce emissions. Finally, the Article 6 of the Paris Agreement offers a major opportunity to lower the costs of mitigation action and enable higher climate ambition. While the implementation Article 6 and its rules are not yet clarified, several pilot programs have started, some of which are being supported by the World Bank, that can enable us to test design options and identify challenges and innovative solutions. Pricing carbon pollution is a crucial tool for driving investment and action in the right direction. Getting our prices right, and doing it now, is key to achieving climate and development goals. John Roome, Senior Director, Climate Change Group, World Bank 4 List of abbreviations and acronyms A ADB Asian Development Bank F FCPF Forest Carbon Partnership Facility FSB Financial Stability Board B BAU Business-as-usual BNDES The Brazilian development bank G GCF Green Climate Fund GDP Gross Domestic Product C °C Degrees Celsius GGPPA Greenhouse Gas Pollution Pricing CAR Clean Air Rule Act CARB California Air Resources Board GHG Greenhouse gas CCIR Carbon Competitive Incentive GtCO2e Gigaton of carbon dioxide Regulation equivalent CDM Clean Development Mechanism CER Certified Emission Reduction I ICAO International Civil Aviation CO2 Carbon dioxide Organization CO2e Carbon dioxide equivalent IEA International Energy Agency COP Conference of the Parties IFC International Finance Corporation CORSIA Carbon Offset and Reduction IMO International Maritime Scheme for International Aviation Organization CPLC Carbon Pricing Leadership INDC Intended Nationally Determined Coalition Contribution IPCC Intergovernmental Panel on D DRC Democratic Republic of Congo Climate Change ITMO Internationally Transferred E EBRD European Bank for Mitigation Outcome Reconstruction and Development EC European Commission J JCM Joint Crediting Mechanism ECR Emissions Containment Reserve EIB European Investment Bank K KtCO2e Kiloton of carbon dioxide ERF Emissions Reduction Fund equivalent ERPA Emissions reduction purchasing agreements ESRAF Energy Subsidy Reform Assessment Framework ETS Emissions Trading System EU European Union EUA European Union Allowance EU ETS European Union Emissions Trading System 5 M MDB Multilateral development bank S SARPs Standards and Recommended MEPC Marine Environment Protection Practices Committee SGER Specified Gas Emitters Regulation MIGA Multilateral Investment Guarantee Agency T t Ton (note that, unless specified MRV Monitoring, Reporting and otherwise, ton in this report refers Verification to a metric ton = 1,000 kg) MSR Market stability reserve TCAF Transformative Carbon Asset MtCO2e Megaton of carbon dioxide Facility equivalent TCDF Task Force on Climate-related Financial Disclosures N NACAP Nitric Acid Climate Auctions TCI Transportation and Climate Program Initiative NACAG The Nitric Acid Climate Action tCO2 Ton of carbon dioxide Group tCO2e Ton of carbon dioxide equivalent NDC Nationally Determined Contribution U UK United Kingdom NZ ETS New Zealand Emissions Trading UNFCCC United Nations Framework System Convention on Climate Change US United States O OBPS Output-Based Pricing System OECD Organisation for Economic Co- W WCI Western Climate Initiative operation and Development P PMR Partnership for Market Readiness PSS Performance Standards System R RBCF Results-based Climate Finance REDD+ Reducing Emissions from Deforestation and Forest Degradation including sustainable forest management, conservation of forests, and enhancement of carbon sinks RGGI Regional Greenhouse Gas Initiative 6 Table of contents 3 Foreword 4 List of abbreviations and acronyms 8 Executive summary 18 1. Introduction 20 2. Regional, national, and subnational carbon pricing initiatives 21 2.1 Global overview of carbon pricing initiatives 29 2.2 Detailed overview of carbon pricing initiatives 47 2.3 Recent developments, emerging and future trends 52 3. International carbon pricing initiatives 64 4. Internal carbon pricing 68 5. Looking beyond explicit carbon pricing 69 5.1 Explicit and implicit carbon pricing 70 5.2 Fossil fuel subsidies and fuel taxes as implicit carbon pricing 76 5.3 The relevance of implicit carbon pricing for explicit carbon pricing policies 80 Annex I, Exchange rates 81 Annex II, Detailed overview of carbon pricing initiatives in the canadian provinces and territories 86 Annex III, NDC table 7 Figures 13 1 Summary map of regional, national and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax) 14 2 Regional, national and subnational carbon pricing initiatives: share of global emissions covered 15 3 Prices in implemented carbon pricing initiatives 16 4 Carbon price, share of emissions covered and carbon pricing revenues of implemented carbon pricing initiatives 17 5 Sectoral coverage and GHG emissions covered by carbon pricing initiatives implemented or scheduled for implementation, with sectoral coverage and GHG emissions covered 24 6 Summary map of regional, national and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax) 25 7 Regional, national and subnational carbon pricing initiatives: share of global emissions covered 26 8 Prices in implemented carbon pricing initiatives 27 9 Carbon price and emissions coverage of implemented carbon pricing initiatives 28 10 Carbon price, share of emissions covered and carbon pricing revenues of implemented carbon pricing initiatives 31 11 Summary map of key carbon pricing developments in the Canadian provinces and territories 36 12 Cumulative trading volume and value of the Chinese ETS pilots in 2018 50 13 Sectoral coverage and GHG emissions covered by carbon pricing initiatives implemented or scheduled for implementation, with sectoral coverage and GHG emissions covered 54 14 Status of NDC submissions 59 15 Historic CDM and JI issuances and CER prices 60 16 Historic issuance of VCS and Gold Standard 72 17 Illustrative example of pre- and post-tax subsidies on gasoline 73 18 Global energy subsidies, 2011–15 Tables 32 1 Summary of recent developments in key carbon pricing initiatives in the Canadian provinces and territories 44 2 Key carbon pricing developments in US states 56 3 Overview of countries seeking to use the outcomes such as ITMOs and potential credits from the Article 6.4 mechanism to help meet their NDCs 80 4 Currency conversion rates, as of April 1, 2019 86 5 Unconditional and conditional targets and intended use of carbon pricing and/or market instruments stated in NDCs Boxes 12 1 Carbon pricing in numbers 22 2 Carbon pricing trajectories to meet the objectives of the Paris Agreement 36 3 Chinese ETS pilot market highlights for 2018 46 4 Summary of selected changes in regional, national and subnational carbon pricing initiatives 49 5 Catalyzing public support for carbon pricing 51 6 Carbon pricing in numbers 67 7 Case studies on private sector finance 71 8 Types of fossil fuel subsidies and estimates by IEA, IMF, and OECD 8 Executive summary In 2018 and 2019, the number of carbon Carbon pricing is increasingly recognized as an pricing initiatives around the world increased essential instrument to cost-effectively deliver the and existing systems were strengthened as transition to low-carbon societies.3 In the past year, jurisdictions assessed their policies to better the IPCC, the International Monetary Fund (IMF) align with their climate objectives. But we are and the Organisation for Economic Co-operation still very far from where we need to be to meet and Development (OECD) all reiterated the need for the Paris Agreement objectives. The coverage strengthening and accelerating carbon pricing, and and price levels of carbon pricing initiatives is the IMF recently pushed for establishing a voluntary still insufficient. It is crucial that jurisdictions carbon price floor among large emitters.4 At the take action now to increase the breadth and recent World Bank Group Spring Meetings, Finance the depth of carbon pricing. 2019 is also a Ministers from more than 20 countries endorsed the critical year for clarifying the implementation “Helsinki Principles,” which promote national climate of the international carbon pricing mechanisms action mainly through fiscal policy and the use of stated in the Paris Agreement and unlock their public finance.5 potential for accelerating action and increasing ambition. Countries are committed to using carbon pricing to meet national climate targets. Of the 185 Parties The challenge of reducing global greenhouse gas (GHG) that have submitted their Nationally Determined emissions sufficiently to mitigate dangerous impacts Contributions (NDCs) to the Paris Agreement, 96— of climate change remains daunting. According to the representing 55 percent of global GHG emissions International Energy Agency (IEA),1 increased energy —have stated that they are planning or considering demand contributed to a 1.7 percent rise in energy- the use of carbon pricing as a tool to meet their related GHG emissions in 2017, the highest rate of commitments. That is an increase of eight Parties growth in four years. In 2018, total GHG emissions from last year. reached historic heights, and the Intergovernmental Panel on Climate Change (IPCC) stressed that the Regional, national and subnational jurisdictions window of opportunity to limit global warming and its continue to adopt carbon pricing as a key policy to dramatic consequences is closing fast.2 meet their climate targets, with 11 new initiatives 1 Source: IEA, Global Energy & CO2 Status Report 2018, April 26, 2019. 2 Source: IPCC, Global Warming of 1.5°C, 2018. 3 Source: IPCC, Global Warming of 1.5°C, 2018. 4 Source: IMF, Getting Real on Meeting Paris Climate Change Commitments, May 3, 2019, https://blogs.imf.org/2019/05/03/getting-real-on-meeting-paris- climate-change-commitments/. 5 Source: WBG, The Helsinki Principles, April 2019. https://www.worldbank.org/en/news/press-release/2019/04/13/coalition-of-finance-ministers-for- climate-action Executive summary 9 implemented in 2018 and 2019 so far. This increases −− An ETS in Saskatchewan covering large industrial the total carbon pricing initiatives implemented and facilities, which is complemented with the federal scheduled for implementation to 57. This consists of backstop system on all other emissions in the 28 emission trading systems (ETSs) in regional, national province as the ETS alone did not meet the federal and subnational jurisdictions, and 29 carbon taxes, benchmark; primarily applied on a national level. In total, these −− A carbon tax in Singapore that applies to all large carbon pricing initiatives cover 11 gigatons of carbon emitters; dioxide equivalent (GtCO2e), or about 20  percent of −− An economy-wide carbon tax in South Africa—the global GHG emissions, similar as compared to last first carbon tax in Africa. year. Carbon pricing continues to expand with various New carbon pricing initiatives are emerging, initiatives under consideration. On the national mostly at a subnational level and in the Americas. level, this includes Colombia, Mexico, the Netherlands, Five new carbon pricing initiatives are in Canadian Senegal, Ukraine and Vietnam. Within the subnational provinces and territories, driven by Canada’s context, in Canada, Ontario and the Northwest federal carbon pricing approach. 11 initiatives were Territories are working on new initiatives, while in the implemented globally in 2018–2019 so far. United States (US), New Jersey and Virginia are looking to join the RGGI and other states—such as Oregon In 2018: and New Mexico—are considering developing their −− An ETS in Massachusetts covering power plants, own carbon pricing initiatives. which will continue to be subject to the Regional Greenhouse Gas Initiative (RGGI); Governments raised approximately US$44 billion −− A carbon tax in Argentina covering most liquid in carbon pricing revenues in 2018, with more than fuels.6 half generated by carbon taxes. This is an increase of nearly US$11 billion compared to the previous year. In 2019: Most of the revenue growth came from the higher −− A backstop system at the federal level in Canada European Union (EU) allowance price with other with two carbon pricing initiatives: an ETS that contributions from larger allowance sales in California applies to power generation and industrial and Québec, and an increase in revenues in Alberta, facilities, and a carbon tax-like fuel charge that British Colombia and France due to higher carbon tax covers a wide range of fossil fuels and combustible rates. waste. The backstop system applies to provinces and territories that opt for it, or else have failed Many jurisdictions are broadening and deepening to establish their own carbon pricing initiative that their carbon pricing instruments to better align meets federal benchmarks; with their climate goals, but prices remain −− An ETS in Nova Scotia, applying to the industry, too low to deliver on the objectives of the electricity, building, and transport sectors; Paris Agreement. Governments are increasingly −− An ETS and a carbon tax in Newfoundland and recognizing carbon pricing as a key policy instrument Labrador, with the ETS applying to large industrial to meet climate mitigation targets. Strategies to facilities and electricity generation, and a carbon strengthen carbon pricing action included both tax covering fuels primarily used in transportation, deepening, i.e. increasing prices or stringency, and heating of buildings and electricity generation; broadening, i.e. increasing emission coverage. For −− A carbon tax in Prince Edward Island similar to the example, Iceland increased its carbon tax rate by fuel charge of the federal backstop system; 10  percent in 2019 to bolster its effort to reach its NDC 6 For fuel oil, mineral coal, and petroleum coke, the tax is applied since the beginning of 2019. 10 targets, and Portugal is gradually reducing its carbon to adopt carbon pricing, learning from past examples tax exemptions to transition away from coal. The EU and good practices will be key. This report contributes and New Zealand have also significantly reformed to supporting this effort by describing the latest and strengthened their respective ETSs to align with developments and some of the lessons learned from their NDCs, and Kazakhstan has relaunched its ETS jurisdictions around the world. after a two-year suspension. In the US, more states have opted to join the RGGI, and California is in the Considering policies that put an implicit price on process of implementing significant reforms in its ETS. carbon can also help action on carbon pricing. Various policies can be seen as putting an implicit However, these efforts are insufficient, as less price on carbon, such as fuel taxes and removal of than five percent of global emissions covered fossil fuel subsidies.8 Accounting for these policies in under carbon pricing initiatives are priced at a the debate on carbon pricing can play an important level consistent with achieving the goals of the role in pushing forward the carbon pricing agenda. Paris Agreement, i.e. US$40tCO2 to US$80/tCO2 by The ambition needed on carbon pricing depends on 2020 and US$50/tCO2 to US$100/tCO2 by 2030.7 Due the overall policy environment, with stronger action to the recent price increases, this represents some required when other policies do not sufficiently progress compared to last year when one percent of support the transition to decarbonization. the covered emissions were in this range. It is still too low to meet the objectives of the Paris Agreement. Broadening the debate on explicit carbon pricing Moreover, about half of the emissions covered to carbon prices implicitly imposed via other by carbon pricing initiatives are still priced below policies can help policymakers and analysts US$10/tCO2e. While this number remains unchanged obtain a more comprehensive and transparent from 2018, it is encouraging to see that the drop from view of the price applied to GHG emissions. This three-quarters of the covered emissons that were enables a better understanding of the price on priced below US$10/tCO2e in 2017 has persisted. GHG emissions in various jurisdictions across time and helps in aligning carbon pricing with overall The timid upward trends in adopting and ambitions. Discussing implicit carbon pricing can strengthening carbon pricing initiatives are also help governments communicate about carbon accompanied by increasing awareness that pricing with relevant stakeholders, for instance, implementing carbon pricing can be challenging. by highlighting the existence of—often large— In the past year, various initiatives have experienced co-benefits from policies that implicitly and explicitly pushback, such as the freeze of the carbon tax rate price carbon. Importantly, some measures that increase in France and the public rejection of a implicitly price carbon face similar implementation proposed carbon tax in the US state of Washington. challenges as those that price carbon explicitly. This highlights the importance of obtaining and Policymakers can thus learn useful lessons from maintaining public support for carbon pricing. To experience in implementing implicit carbon pricing help close the gap between current carbon prices policies to strengthen action on carbon taxes and and Paris-compatible levels and enable jurisdictions ETSs. 7 Source: CPLC, Report of the High-Level Commission on Carbon Prices, May 29, 2017. 8 Work that goes in this direction has been conducted by OECD and IMF, see: OECD, Effective Carbon Rates 2018 - Pricing Carbon Emissions Through Taxes and Emissions Trading, September 18, 2018; IMF (2019), Fiscal Policies For Paris Climate Strategies—From Principle To Practice, IMF Policy Paper. Executive summary 11 At the global level, there has been an increased The package includes operational guidance for interest in international cooperation. North governments in preparing their NDCs and rules for America and Europe have taken steps towards the functioning of the Transparency Framework. creating linkages across several regions of the world. However, the negotiations did not agree on For example, the European Commission held its first modalities and procedures for Article 6 mechanisms. policy dialogue with China's newly created Ministry Several outstanding issues remain to be discussed at of Ecology and Environment, reaffirming continued COP 25 in Santiago, Chile. In this context, piloting bilateral cooperation in developing China’s national activities initiated in several regions can play an ETS. At the Global Climate Action Summit 2018, important role in demonstrating opportunities and the EU and California agreed that officials from challenges based on practical experience, building both jurisdictions would increase the frequency of capacity, and enhancing international cooperation. exchanges, including on principles of alignment and the role of carbon pricing. The private sector is finding innovative ways to use carbon pricing to identify greater opportunities International cooperation through carbon pricing for GHG mitigation and reduce climate-related can play an important role in reducing the cost of financial risks. Traditionally, companies use implementing mitigation actions and increasing internal carbon pricing in their investment decisions resource mobilization by crowding in public and to evaluate risks from mandatory carbon pricing private capital. Cooperation can lead to substantial initiatives.9 However, businesses are exploring new cost savings in achieving the mitigation objectives of ways of using internal carbon pricing to manage the NDCs. Article 6 of the Paris Agreement provides for long-term climate risks and align their investments voluntary cooperation among Parties to implement with climate objectives. For instance, major banking their NDCs, raise ambition, and promote sustainable institutions are using carbon pricing approaches development and environmental integrity. Article to review credit applications and assess their own 6 can also provide a basis for establishing new portfolio footprint, while major indices are accounting linkages among different jurisdictions to reduce for climate risks and climate policy including carbon the current fragmentation of carbon markets. The pricing. Financial institutions are also increasingly linking of markets also offers greater depth and applying internal carbon pricing in their investment liquidity in markets and increased cost-efficiency and decisions to manage climate-related risks and effectiveness in achieving emissions mitigation. opportunities. Guidelines for implementing Article 6 of the Paris Agreement are still being clarified, but pilots are already starting. At the 24th Conference of the Parties (COP 24) held in December 2018 in Katowice, Poland, an important milestone was met with the adoption of the Katowice Climate Package, which sets out the implementation guidelines for the Paris Agreement. 9 Source: CDP, Putting a Price on Carbon- Integrating Climate Risk into Business Planning, October 2017. 12 Box 1 / Carbon pricing in numbers Executive summary 13 Figure 1 / Summary map of regional, national and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax) Sweden Beijing Newfoundland Alberta and Labrador Finland Tianjin Saitama Norway Tokyo Den­mark Shanghai Hubei UK Chongqing Estonia Latvia Fujian Ireland Poland Guangdong Taiwan Québec Ukraine Shenzhen Saskatchewan Ontario RGGI Spain TCI Portugal Prince ­ Virginia Edward Island France Slovenia Nova Scotia Catalonia Liechtenstein New Brunswick Switzerland Massachusetts Northwest Territories Canada Iceland EU British Republic ­Columbia Kazakhstan of Korea Washington Oregon Japan California China Turkey Mexico Senegal Thailand Vietnam Colombia Singapore Côte d’Ivoire Brazil Rio de Janeiro São Paulo Australia Chile Argentina South Africa New Zealand Tally of carbon pricing initiatives ETS implemented or scheduled for implementation ETS and carbon tax implemented or scheduled implemented or scheduled for Carbon tax implemented or scheduled for Carbon tax implemented or scheduled, ETS under consideration implementation implementation ETS implemented or scheduled, carbon tax under consideration ETS or carbon tax under consideration ETS and carbon tax implemented or scheduled, ETS or carbon tax under consideration 17 The large circles represent cooperation initiatives on carbon pricing between subnational jurisdictions. The small circles represent 8 3 carbon pricing initiatives in cities. 46 1 Note: Carbon pricing initiatives are considered “scheduled for implementation” once they have been formally adopted through 28 legislation and have an official, planned start date. Carbon pricing initiatives are considered “under consideration” if the government 21 24 has announced its intention to work towards the implementation of a carbon pricing initiative and this has been formally confirmed by official government sources. The carbon pricing initiatives have been classified in ETSs and carbon taxes according to how they operate technically. ETS not only refers to cap-and-trade systems, but also baseline-and-credit systems as seen in British Columbia and National level Subnational level baseline-and-offset systems as seen in Australia. The authors recognize that other classifications are possible. 14 Figure 2 / Regional, national and subnational carbon pricing initiatives: share of global emissions covered 25% Share of global annual GHG emissions 57 20% 56 15% 46 47 41 38 37 32 10% 24 21 5% 16 19 9 10 15 Number of implemented initiatives 2 4 5 6 7 8 0% 1991 2001 2011 1997 2007 2017 1995 2005 2015 1992 2002 2012 1996 2006 2016 1993 1994 2003 2004 2013 2014 1998 1999 2008 2009 2018 2019 1990 2000 2010 2020 Finland carbon tax (1990 ) Saitama ETS (2011 ) Australia ERF Safeguard Mechanism (2016 ) Poland carbon tax (1990 ) California CaT (2012 ) Fujian pilot ETS (2016 ) Norway carbon tax (1991 ) Japan carbon tax (2012 ) Washington CAR (2017 ) Sweden carbon tax (1991 ) Australia CPM (2012 - 2014) Ontario CaT (2017 - 2018) Denmark carbon tax (1992 ) Québec CaT (2013 ) Alberta carbon tax (2017 ) Slovenia carbon tax (1996 ) Kazakhstan ETS (2013 ) Chile carbon tax (2017 ) Estonia carbon tax (2000 ) UK carbon price floor (2013 ) Colombia carbon tax (2017 ) Latvia carbon tax (2004 ) Shenzhen pilot ETS (2013 ) Massachusetts ETS (2018 ) EU ETS (2005 ) Shanghai pilot ETS (2013 ) Argentina carbon tax (2018 ) Alberta CCIR (2007 ) Beijing pilot ETS (2013 ) Canada federal OBPS (2019 ) Switzerland ETS (2008 ) Guangdong pilot ETS (2013 ) Singapore carbon tax (2019 ) New Zealand ETS (2008 ) Tianjin pilot ETS (2013 ) Nova Scotia CaT (2019 ) Switzerland carbon tax (2008 ) France carbon tax (2014 ) Saskatchewan OBPS (2019 ) Liechtenstein carbon tax (2008 ) Mexico carbon tax (2014 ) Newfoundland and Labrador carbon tax (2019 ) BC carbon tax (2008 ) Spain carbon tax (2014 ) Newfoundland and Labrador PSS (2019 ) RGGI (2009 ) Hubei pilot ETS (2014 ) Canada federal fuel charge (2019 ) Iceland carbon tax (2010 ) Chongqing pilot ETS (2014 ) Prince Edward Island carbon tax (2019 ) Tokyo CaT (2010 ) Korea ETS (2015 ) South Africa carbon tax (2019 ) Ireland carbon tax (2010 ) Portugal carbon tax (2015 ) China national ETS (2020 ) Ukraine carbon tax (2011 ) BC GGIRCA (2016 ) Note: Only the introduction or removal of an ETS or carbon tax is shown. Emissions are presented as a share of global GHG emissions in 2012 from (EDGAR) version 4.3.2 including biofuels emissions. Annual changes in GHG emissions are not shown in the graph. In 2018, the Alberta Carbon Competitiveness Incentive Regulation (CCIR) replaced the Alberta Specified Gas Emitters Regulation, which was launched in 2007. The information on the China national ETS represents early unofficial estimates based on the announcement of China’s National Development and Reform Commission on the launch of the national ETS of December 2017. Executive summary 15 Figure 3 / Prices in implemented carbon pricing initiatives 130 Note: Nominal prices on April 1, 2019, shown for illustrative purpose Carbon price (US$/tCO2e) only. The Australia ERF Safeguard Mechanism, British Columbia 127 Sweden carbon tax GGIRCA, Canada federal OBPS, Kazakhstan ETS, Nova Scotia CaT, Newfoundland and Labrador PSS, Saskatchewan OBPS and Washington CAR are not shown in this graph as price information is not available for those initiatives. Prices are not necessarily 120 comparable between carbon pricing initiatives because of differences in the sectors covered and allocation methods applied, specific exemptions, and different compensation methods. 110 100 EU ETS 25 Switzerland carbon tax, 96 Liechtenstein carbon tax 24 UK carbon price floor 90 Denmark carbon tax (F-gases) 23 Alberta CCIR, Alberta carbon tax 22 Ireland carbon tax Korea ETS 80 Slovenia carbon tax 19 Finland 70 70 carbon tax (transport fuels) New Zealand ETS, 17 Minimal price Spain carbon tax Finland carbon range needed Québec CaT, tax (other by 2020 to be 16 Newfoundland and California CaT 60 fossil fuels) consistent with Labrador carbon tax, 60 59 Norway carbon achieving the 15 Canada federal fuel tax (upper) Paris Agreement charge, Prince Edward temperature Island carbon tax Portugal carbon tax 14 target. France 50 50 carbon tax 11 Beijing pilot ETS 40 31 Iceland carbon tax 30 Denmark carbon tax 26 (fossil fuels), BC carbon tax Argentina carbon tax (most liquid Switzerland ETS, 6 Colombia carbon tax, fuels), Saitama ETS, Tokyo CaT Latvia carbon tax, 20 5 Chile carbon tax, RGGI Shanghai pilot ETS, Hubei pilot ETS, 4 Singapore carbon tax Norway carbon tax (lower), Mexico carbon tax (upper), 3 Guangdong pilot ETS, 10 Japan carbon tax Estonia carbon tax, 2 Tianjin pilot ETS, Fujian pilot ETS Argentina carbon tax (fuel oil, mineral coal 1 and petroleum coke), Mexico carbon tax (lower), <1 Shenzhen pilot ETS, Ukraine carbon tax, Poland carbon tax Chongqing pilot ETS 0 16 Figure 4 / Carbon price, share of emissions covered and carbon pricing revenues of implemented carbon pricing initiatives 150 Carbon price (US$/tCO2e) 125 Sweden carbon tax Switzerland Liechtenstein carbon tax 100 carbon tax 75 Finland carbon tax France carbon tax 50 Denmark carbon tax Norway carbon tax Alberta carbon tax Alberta CCIR Iceland carbon tax UK carbon Ireland carbon tax BC carbon tax price floor 25 Slovenia Spain carbon tax Québec CaT carbon tax Latvia Korea ETS carbon tax EU ETS Chile Japan Estonia Argentina carbon New Zealand ETS carbon tax carbon carbon tax tax tax Mexico Shanghai California CaT Portugal carbon tax pilot ETS Poland Ukraine carbon tax carbon tax carbon tax RGGI 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of GHG emissions covered in the jurisdiction Note: The size of the circles is proportional to the amount of government revenues except for initiatives with government revenues below US$100 million in 2018; the circles of these initiatives have an equal size. For illustrative purposes only, the nominal prices on April 1, 2019 and the coverages in 2019 are shown. The carbon tax rate applied in Argentina, Finland, Mexico and Norway varies with the fossil fuel type and use. The carbon tax rate applied in Denmark varies with the GHG type. The graph shows the average carbon tax rate weighted by the amount of emissions covered at the different tax rates in those jurisdictions. The middle point of each circle corresponds to the price and coverage of that initiative. Executive summary 17 Figure 5 / Sectoral coverage and GHG emissions covered by carbon pricing initiatives implemented or scheduled for implementation, with sectoral coverage and GHG emissions covered WASHINGTON MASSACHUSETTS EU** KAZAKHSTAN 2% 20% 18% 41% 39% 33% 50% 70% 67% 11% 71% 65% 41% SWITZER- REPUBLIC OF CANADA**** RGGI LAND 7% UKRAINE KOREA JAPAN*** 4% 33% NEW MEXICO CHILE SOUTH AFRICA SINGAPORE ZEALAND 20% 24% 39% 46% 50% 51% 85% 80% 80% CALIFORNIA COLOMBIA ARGENTINA CHINA* AUSTRALIA ETS implemented or scheduled for implementation Industry Buildings All fossil fuels (tax only) Carbon tax implemented or scheduled for implementation Power Waste Solid fossil fuels ETS and carbon tax implemented or scheduled Transport Forestry Liquid fossil fuels 40% Estimated coverage Aviation Agriculture Shipping Note: The size of the circles reflects the volume of GHG emissions in each jurisdiction. Symbols show the sectors and/or fuels covered under the r ­ espective carbon pricing initiatives. The largest circle (China) is equivalent to 12.4 GtCO2e and the smallest circle (Switzerland) to 0.05 GtCO2e. The carbon pricing initiatives have been classified in ETSs and carbon taxes according to how they operate technically. ETS does not only refer to cap-and-trade systems, but also baseline-and-credit systems such as British Columbia and baseline-and-offset systems such as in Australia. Carbon pricing has evolved over the years and they do not necessarily follow the two categories in a strict sense. The authors recognize that other classifications are possible. * The coverage includes the China national ETS and eight ETS pilots. The coverage represents early unofficial estimates based on the announcement of China’s National Development and Reform Commission on the launch of the national ETS of December 2017 and takes into account the GHG emissions that will be covered under the national ETS and are already covered under the ETS pilots. The sector symbol refers to the covered sectors in the national ETS or (one of the) ETS pilots. The national ETS will initially cover the power sector only. The covered sectors vary per ETS pilot. ** Also includes Norway, Iceland and Liechtenstein. Carbon tax emissions are the emissions covered under various national carbon taxes; the scope varies per tax. *** ETS emissions are the emissions covered under the Tokyo CaT and Saitama ETS. **** The coverage includes both components of the Canada federal backstop system and the subnational carbon pricing initiatives. 1 Introduction 19 1 Introduction The dangerous consequences of climate change » There is a growing consensus are clearer than ever before. Yet, analyses indicate that countries’ implemented policies and Nationally that carbon pricing—charging Determined Contribution (NDC) pledges fall far short for the carbon content of fossil of what is needed to keep the global temperature rise well below 2°C and pursue efforts to limit it to 1.5°C by fuels or their emissions—is 2100.10 Carbon pricing can play a key role in the urgent the single most effective efforts needed to accelerate the transition toward a low-carbon, climate-resilient future and increase the mitigation instrument. « current level of ambition.11 Christine Lagarde, Managing Director of the International Monetary Fund and Vitor Gaspar, Director of the International Monetary Fund's Fiscal Affairs Department This report takes stock of the latest developments in carbon pricing initiatives across the globe. It presents Chapter 2 of this report provides an overview of trends surrounding their development, the role they recent developments in carbon pricing initiatives play in various economic sectors, and the policy choices at the regional, national, and subnational level and involved. Tracking these developments helps identify highlights trends occurring across these jurisdictions. gaps between current carbon pricing initiatives and Chapter 3 summarizes the latest international those that would be needed to deliver on the objectives cooperation on carbon pricing, including the status of of the Paris Agreement. To this end, the report the implementation of the Paris Agreement and NDCs. covers a variety of ways of putting a price on carbon This chapter also discusses voluntary carbon markets, emissions, which are here classified as carbon pricing, RBCF, and carbon pricing in international aviation and internal carbon pricing and implicit carbon pricing. international maritime transport. Chapter 4 reports on For the purpose of this report, carbon pricing refers internal carbon pricing initiatives with a focus on their to initiatives that put an explicit price on greenhouse role in the private sector’s effort to integrate climate- gas (GHG) emissions expressed in a monetary unit per related financial risks and opportunities in their tCO2e. This includes carbon taxes, emissions trading decision making with other instruments. For the first systems (ETSs), offset mechanisms, and results-based time in the State and Trends of Carbon Pricing report climate finance (RBCF).12 Internal carbon pricing refers series, Chapter 5 has been added to discuss measures to the practice of organizations assigning a monetary that put an implicit price on carbon, such as fossil value to GHG emissions in their policy analyses and fuel subsidy reforms and fuel taxes. This section goes decision making. Where this report discusses implicit beyond the traditional scope of the report to provide carbon pricing, it refers to other policies that implicitly readers with a brief introduction of implicit carbon price GHG emissions, such as the removal of fossil fuel pricing in the context of, and relevance to, explicit subsidies and fuel taxation. carbon pricing. 10 Source: Climate Analytics, New Climate Institute, and Ecofys, a Navigant company, Climate Action Tracker - Warming Projections Global Update, December 11, 2018, https://climateactiontracker.org/documents/507/CAT_2018-12-11_Briefing_WarmingProjectionsGlobalUpdate_Dec2018.pdf. 11 The key role of carbon pricing in driving low carbon transition was recently recognized by IMF Managing Director Christine Lagarde and Fiscal Affairs Director Vitor Gaspar, https://blogs.imf.org/2019/05/03/getting-real-on-meeting-paris-climate-change-commitments/ 12 RBCF has a carbon pricing component in that the amount of funding received per unit of GHG reduction target achieved creates the incentive for following through on the project. 2 Regional, national, and subnational carbon pricing initiatives 21 2 Regional, national, and subnational carbon pricing initiatives 2.1 Carbon prices vary substantially, from less than US$1/tCO2e to a maximum of US$127/tCO2e, as Global overview of carbon shown in Figure 8. With some exceptions, carbon tax pricing initiatives levels in 2019 remained unchanged while prices in many ETSs increased.17 Most carbon taxes are linked As of April 1, 2019, 57 carbon pricing initiatives to inflation only, which showed limited evolution have been implemented, or are scheduled for in the past year. The carbon tax rate increases that implementation. This consists of 28 ETSs, spread occurred include i) the Portugal carbon tax rate that across national and subnational jurisdictions, almost doubled from €6.85/tCO2e (US$8.50/tCO2e) to and 29 carbon taxes, primarily implemented on €12.74/tCO2e (US$14.31/tCO2e) as it is linked to the a national level. In total, as of 2019,13 46 national European Union Allowance (EUA) price; and ii) the and 28 subnational jurisdictions14 are putting a Iceland carbon tax rate, which increased by 10 percent price on carbon, as shown in Figure 6.15 Carbon to approximately ISK3850/tCO2 (US$31/tCO2). In pricing initiatives implemented and scheduled for France, the social protests resulted in the government implementation cover 11 gigatons of carbon dioxide shelving its planned carbon tax increase as described equivalent (GtCO2e) or about 20 percent of GHG in more detail in Section 2.2. The increase of prices in emissions, as displayed in Figure 7.16 many ETSs reflects strengthened trust and increased stringency. The EUA price continued to grow from Details on the main developments that occurred in the €13/tCO2e to €21/tCO2e (US$16/tCO2e to US$25/tCO2e) past year in regional, national and subnational carbon as more certainty developed on the future of the pricing initiatives are presented below and overall European Union Emissions Trading System (EU ETS) trends analyzed over the past year are presented at after 2020. California and New Zealand also saw price the end of this section. increases thanks to increased clarity on their post- 2020 situation. 13 This report covers developments from January 1, 2018 until April 1, 2019. 14 Cities, states, and subnational regions. 15 The authors have kept the format of presenting this information consistent with the previous editions of the State and Trends of Carbon Pricing for comparison purposes. 16 The 2012 GHG emissions data of the Emissions Database for Global Atmospheric Research (EDGAR) version 4.3.2 including biofuels emissions has been used in this report. Source: EC JRC and PBL, EDGAR’s Global Greenhouse Gas Emissions from 1970 to 2012 (EDGARv4.3.2 Dataset), October 2017. 17 Price of April 1, 2018 compared with April 1, 2019. 22 Nonetheless, most jurisdictions still have carbon prices Governments raised more than US$44 billion that are lower than those needed to cost-effectively in carbon pricing revenues in 2018, consisting of deliver on the Paris Agreement. As discussed in Box 2 revenues from carbon taxes, auctioned allowances, below, carbon prices of at least US$40–80/tCO2 by and direct payments to meet compliance obligations. 2020 and US$50–100/tCO2 by 2030 are required to This represents an increase of nearly US$11 billion cost-effectively meet the temperature targets of the compared to the US$33 billion raised in 2017. The Paris Agreement. At present less than 5 percent of EU ETS contributed most to the increase in revenues GHG emissions currently covered under a carbon due to the increase in the EUA price, followed by price initiative is in line with required 2020 prices as California and Québec due to a larger share of shown in Figure 9. This is a slight increase from only allowances bought at auctions over the year.18 The one percent last year, but it is still very insufficient. France carbon tax contributed to more than a third Moreover, about half of the emissions covered by of global carbon tax revenue, followed by the carbon carbon pricing initiatives are still priced at less than taxes of Canadian provinces Alberta and British US$10/tCO2e. While this number remains unchanged Columbia where the carbon tax rates had also from 2018, it is encouraging to see that the drop from increased in 2018. An overview of the government three-quarters of the covered emissons that were revenues from carbon pricing is shown in Figure 10. priced below US$10/tCO2e in 2017 has persisted. Box 2 / Carbon pricing trajectories to meet the objectives of the Paris Agreement Identifying carbon price trajectories that can deliver on the Paris Agreement is crucial to guide climate action. In the past years, various price trajectories have been published that are needed to deliver on the Paris Agreement, each with important distinctions: −− The 1.5°C Intergovernmental Panel on Climate Change (IPCC) report, released in October 2018, provides price ranges of US$135–6,050/tCO2e in 2030, US$245–14,300/tCO2e in 2050, US$420– 19,300/tCO2e in 2070, and US$690–30,100/tCO2e in 2100 (undiscounted values) under a pathway to keep peak temperatures below 1.5°C in the 21st century with 50–66 percent probability.19 These price ranges are estimates of marginal abatement costs and comprise both prices from policies that put an explicit price on GHG emissions and costs on emissions from other policies.20 −− The High-Level Commission on Carbon Prices indicates that carbon prices of policies that put an explicit price on GHG emissions need to be at least in the range of US$40–80/tCO2 by 2020 and US$50–100/tCO2 by 2030 to deliver on the Paris Agreement.21 These prices are suggested under the condition that a sufficiently ambitious climate policy environment is in place. 18 Source: California Air Resources Board, Archived Auction Information and Results, accessed March 5, 2019, https://www.arb.ca.gov/cc/capandtrade/auction/ auction_archive.htm. 19 Source: IPCC, Global Warming of 1.5°C, 2018. 20 IPCC price estimates are based on Global Integrated Assessment Models, which are tools to inform the implementation of carbon pricing trajectories. These models allow studying how the biophysical system and the economy interact and can provide insights on how to cost-effectively reach a temperature increase target. Marginal abatement costs are often used as an indication of the carbon price needed to yield mitigation because emitters prefer to abate carbon emissions if the cost of emitting an additional ton of carbon is higher than the cost of abating it. 21 Source: CPLC, Report of the High-Level Commission on Carbon Prices, May 29, 2017. 2 / Regional, national, and subnational carbon pricing initiatives 23 −− The Carbon Pricing Corridors initiative provides sectorial estimates of carbon pricing trajectories compatible with the Paris Agreement.22 For the chemical sector, prices of US$30–50/tCO2e in 2020—increasing to US$50–100/tCO2e by 2035—are needed. The power sector would need prices between US$24–35/tCO2e in 2020, rising to US$38–100/tCO2e by 2035.23 These prices assume that carbon pricing is a part of a larger package of complementary policies that support infrastructure development, market design, low cost of financing for low-carbon projects, and low-carbon research and development. The key difference between the different price trajectories is that the IPCC prices show the marginal cost of reducing GHG emissions, while the other sources provide carbon price ranges in the presence of ambitious complementary policies. The High-Level Commission report also estimates that explicit carbon prices would need to be higher if sufficient complementary climate policies are not implemented, or if explicit carbon prices are kept lower in the short term. This shows that the mitigation effectiveness of carbon pricing depends on the policy environment, and reiterates the importance of having a suite of complementary policies to reach the temperature targets set in the Paris Agreement as also highlighted in the 1.5°C IPCC report.24 This will be discussed further in Chapter 5. While these global estimates can serve as important tools to guide climate action, choosing the appropriate price level in each jurisdiction requires a careful analysis of the local context and attention towards ethical and distributional issues, as well as the imperative for global emissions curbs. This balancing is an inherent challenge to be overcome through international cooperation under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC). The High-Level Commission notes that when considering which price level is needed in a given jurisdiction, several factors must be taken into account, also to ensure the lasting acceptability and credibility of the policy, including: i) prevailing policy environment; ii) price elasticity of emissions; iii) distributional and ethical issues related to, for example, historical contributions to climate change, capacity levels, abatement costs; and iv) the need to address potentially competing policy goals, such as poverty reduction.25 Nonetheless, global estimates remain essential for climate action, as they provide common guidelines to policymakers across the globe on the pathway towards deep decarbonization, thus enabling coordination between jurisdictions. International coordination and the alignment of prices over time is essential to effectively tackle climate change as it can create synergies in action, address potential negative consequences of carbon pricing, such as potential carbon leakage, and increase trust, enabling higher ambition overall. 22 Source: CDP, Carbon Pricing Corridors - The Market View 2018, May 2017. 23 Source: Ibid. 24 Source: IPCC, Global Warming of 1.5°C, 2018. 25 Source: CPLC, Report of the High-Level Commission on Carbon Prices, May 29, 2017. 24 Figure 6 / Summary map of regional, national and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax) Sweden Beijing Newfoundland Alberta and Labrador Finland Tianjin Saitama Norway Tokyo Den­mark Shanghai Hubei UK Chongqing Estonia Latvia Fujian Ireland Poland Guangdong Taiwan Québec Ukraine Shenzhen Saskatchewan Ontario RGGI Spain TCI Portugal Prince ­ Virginia Edward Island France Slovenia Nova Scotia Catalonia Liechtenstein New Brunswick Switzerland Massachusetts Northwest Territories Canada Iceland EU British Republic ­Columbia Kazakhstan of Korea Washington Oregon Japan California China Turkey Mexico Senegal Thailand Vietnam Colombia Singapore Côte d’Ivoire Brazil Rio de Janeiro São Paulo Australia Chile Argentina South Africa New Zealand ETS implemented or scheduled for implementation ETS or carbon tax under consideration Carbon tax implemented or scheduled, ETS under consideration Carbon tax implemented or scheduled for implementation ETS and carbon tax implemented or scheduled ETS implemented or scheduled, carbon tax under consideration ETS and carbon tax implemented or scheduled, ETS or carbon The large circles represent cooperation initiatives on carbon pricing between subnational jurisdictions. tax under consideration The small circles represent carbon pricing initiatives in cities. Note: RGGI = Regional Greenhouse Gas Initiative. TCI = Transportation and Climate Initiative. Carbon pricing initiatives are considered “scheduled for implementation” once they have been formally adopted through legislation and have an official, planned start date. Carbon pricing initiatives are considered “under consideration” if the government has announced its intention to work towards the implementation of a carbon pricing initiative and this has been formally confirmed by official government sources. The carbon pricing initiatives have been classified in ETSs and carbon taxes according to how they operate technically. ETS not only refers to cap-and-trade systems, but also baseline-and-credit systems as seen in British Columbia and baseline-and-offset systems as seen in Australia. The authors recognize that other classifications are possible. Initiatives implemented or scheduled for implementation: National ETSs: Australia, Austria, Belgium, Bulgaria, China, Croatia, Cyprus, Czech Republic, Germany, Greece, Hungary, Italy, Kazakhstan, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, the Republic of Korea, Romania, and Slovakia. National carbon taxes: Argentina, Chile, Colombia, Japan, Mexico, Singapore, South Africa, and Ukraine. Both national ETSs and carbon taxes: Canada, Denmark, Estonia, Finland, France, Iceland, Ireland, Latvia, Liechtenstein, Norway, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland, and the United Kingdom. Subnational ETSs: Beijing, California, Chongqing, Connecticut, Delaware, Fujian, Guangdong, Hubei, Maine, Maryland, Massachusetts, New Hampshire, New York, Nova Scotia, Québec, Rhode Island, Saitama, Saskatchewan, Shanghai, Shenzhen, Tianjin, Tokyo, Vermont, and Washington State. Subnational carbon tax: Prince Edward Island. Both subnational ETSs and carbon taxes: Alberta, British Columbia, Newfoundland and Labrador. Initiatives under consideration: National ETS or carbon tax: Brazil, Canada, Chile (ETS), Colombia (ETS), Côte d’Ivoire, Japan (ETS), Mexico (ETS), the Netherlands (carbon tax), Senegal, Thailand, Turkey, Ukraine (ETS), and Vietnam. Subnational ETS or carbon tax: Catalonia, New Brunswick, Northwest Territories, Ontario, Oregon, Rio de Janeiro, São Paolo, Taiwan, China, and Virginia. 2 / Regional, national, and subnational carbon pricing initiatives 25 Figure 7 / Regional, national and subnational carbon pricing initiatives: share of global emissions covered 25% Share of global annual GHG emissions 57 20% 56 15% 46 47 41 38 37 32 10% 24 21 5% 16 19 9 10 15 Number of implemented initiatives 2 4 5 6 7 8 0% 1991 2001 2011 1997 2007 2017 1995 2005 2015 1992 2002 2012 1996 2006 2016 1993 1994 2003 2004 2013 2014 1998 1999 2008 2009 2018 2019 1990 2000 2010 2020 Finland carbon tax (1990 ) Saitama ETS (2011 ) Australia ERF Safeguard Mechanism (2016 ) Poland carbon tax (1990 ) California CaT (2012 ) Fujian pilot ETS (2016 ) Norway carbon tax (1991 ) Japan carbon tax (2012 ) Washington CAR (2017 ) Sweden carbon tax (1991 ) Australia CPM (2012 - 2014) Ontario CaT (2017 - 2018) Denmark carbon tax (1992 ) Québec CaT (2013 ) Alberta carbon tax (2017 ) Slovenia carbon tax (1996 ) Kazakhstan ETS (2013 ) Chile carbon tax (2017 ) Estonia carbon tax (2000 ) UK carbon price floor (2013 ) Colombia carbon tax (2017 ) Latvia carbon tax (2004 ) Shenzhen pilot ETS (2013 ) Massachusetts ETS (2018 ) EU ETS (2005 ) Shanghai pilot ETS (2013 ) Argentina carbon tax (2018 ) Alberta CCIR (2007 ) Beijing pilot ETS (2013 ) Canada federal OBPS (2019 ) Switzerland ETS (2008 ) Guangdong pilot ETS (2013 ) Singapore carbon tax (2019 ) New Zealand ETS (2008 ) Tianjin pilot ETS (2013 ) Nova Scotia CaT (2019 ) Switzerland carbon tax (2008 ) France carbon tax (2014 ) Saskatchewan OBPS (2019 ) Liechtenstein carbon tax (2008 ) Mexico carbon tax (2014 ) Newfoundland and Labrador carbon tax (2019 ) BC carbon tax (2008 ) Spain carbon tax (2014 ) Newfoundland and Labrador PSS (2019 ) RGGI (2009 ) Hubei pilot ETS (2014 ) Canada federal fuel charge (2019 ) Iceland carbon tax (2010 ) Chongqing pilot ETS (2014 ) Prince Edward Island carbon tax (2019 ) Tokyo CaT (2010 ) Korea ETS (2015 ) South Africa carbon tax (2019 ) Ireland carbon tax (2010 ) Portugal carbon tax (2015 ) China national ETS (2020 ) Ukraine carbon tax (2011 ) BC GGIRCA (2016 ) Note: Only the introduction or removal of an ETS or carbon tax is shown. Emissions are presented as a share of global GHG emissions in 2012 from (EDGAR) version 4.3.2 including biofuels emissions. Annual changes in GHG emissions are not shown in the graph. In 2018, the Alberta Carbon Competitiveness Incentive Regulation (CCIR) replaced the Alberta Specified Gas Emitters Regulation, which was launched in 2007. The information on the China national ETS represents early unofficial estimates based on the announcement of China’s National Development and Reform Commission on the launch of the national ETS of December 2017. 26 Figure 8 / Prices in implemented carbon pricing initiatives 130 Note: Nominal prices on April 1, 2019, shown for illustrative purpose Carbon price (US$/tCO2e) only. The Australia ERF Safeguard Mechanism, British Columbia 127 Sweden carbon tax GGIRCA, Canada federal OBPS, Kazakhstan ETS, Nova Scotia CaT, Newfoundland and Labrador PSS, Saskatchewan OBPS and Washington CAR are not shown in this graph as price information is not available for those initiatives. Prices are not necessarily 120 comparable between carbon pricing initiatives because of differences in the sectors covered and allocation methods applied, specific exemptions, and different compensation methods. 110 100 EU ETS 25 Switzerland carbon tax, 96 Liechtenstein carbon tax 24 UK carbon price floor 90 Denmark carbon tax (F-gases) 23 Alberta CCIR, Alberta carbon tax 22 Ireland carbon tax Korea ETS 80 Slovenia carbon tax 19 Finland 70 70 carbon tax (transport fuels) New Zealand ETS, 17 Minimal price Spain carbon tax Finland carbon range needed Québec CaT, tax (other by 2020 to be 16 Newfoundland and California CaT 60 fossil fuels) consistent with Labrador carbon tax, 60 59 Norway carbon achieving the 15 Canada federal fuel tax (upper) Paris Agreement charge, Prince Edward temperature Island carbon tax Portugal carbon tax 14 target. France 50 50 carbon tax 11 Beijing pilot ETS 40 31 Iceland carbon tax 30 Denmark carbon tax 26 (fossil fuels), BC carbon tax Argentina carbon tax (most liquid Switzerland ETS, 6 Colombia carbon tax, fuels), Saitama ETS, Tokyo CaT Latvia carbon tax, 20 5 Chile carbon tax, RGGI Shanghai pilot ETS, Hubei pilot ETS, 4 Singapore carbon tax Norway carbon tax (lower), Mexico carbon tax (upper), 3 Guangdong pilot ETS, 10 Japan carbon tax Estonia carbon tax, 2 Tianjin pilot ETS, Fujian pilot ETS Argentina carbon tax (fuel oil, mineral coal 1 and petroleum coke), Mexico carbon tax (lower), <1 Shenzhen pilot ETS, Ukraine carbon tax, Poland carbon tax Chongqing pilot ETS 0 2 / Regional, national, and subnational carbon pricing initiatives 27 Figure 9 / Carbon price and emissions coverage of implemented carbon pricing initiatives Carbon price (US$/tCO2e) 130 Poland carbon tax Sweden carbon tax Ukraine carbon tax Switzerland carbon tax Chongqing pilot ETS Liechtenstein carbon tax Shenzhen pilot ETS Finland carbon tax 120 Fujian pilot ETS France carbon tax Tianjin pilot ETS Norway carbon tax Estonia carbon tax Iceland carbon tax 110 Mexico carbon tax Denmark carbon tax Japan carbon tax BC carbon tax Guangdong pilot ETS Singapore carbon tax 100 Hubei pilot ETS Shanghai pilot ETS RGGI 90 Chile carbon tax Latvia carbon tax Colombia carbon tax Switzerland ETS 80 Tokyo CaT Saitama ETS Argentina carbon tax Minimal 70 Beijing pilot ETS price range Portugal carbon tax needed by 2020 to be Canada federal fuel charge consistent Newfoundland and Labrador carbon tax with 60 achieving Prince Edward Island carbon tax the Paris California CaT Agreement temperature Québec CaT target. 50 Spain carbon tax New Zealand ETS Slovenia carbon tax Korea ETS 40 Ireland carbon tax Alberta carbon tax Alberta CCIR 30 UK carbon price floor EU ETS 20 10 0 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 7,500 Emissions covered (MtCO2e) ETS Carbon tax Note: The Australia ERF Safeguard Mechanism, British Columbia GGIRCA, Canada federal OBPS, Kazakhstan ETS, Nova Scotia CaT, Newfoundland and Labrador PSS, Saskatchewan OBPS, and Washington CAR are not shown in this graph as price information is not available for those initiatives. The carbon tax rate applied in Argentina, Finland, Mexico and Norway varies with the fossil fuel type and use. The carbon tax rate applied in Denmark varies with the GHG type. The graph shows the average carbon tax rate weighted by the amount of emissions covered at the different tax rates in those jurisdictions. 28 Figure 10 / Carbon price, share of emissions covered and carbon pricing revenues of implemented carbon pricing initiatives 150 Carbon price (US$/tCO2e) 125 Sweden carbon tax Switzerland Liechtenstein carbon tax 100 carbon tax 75 Finland carbon tax France carbon tax 50 Denmark carbon tax Norway carbon tax Alberta carbon tax Alberta CCIR Iceland carbon tax UK carbon Ireland carbon tax BC carbon tax price floor 25 Slovenia Spain carbon tax Québec CaT carbon tax Latvia Korea ETS carbon tax EU ETS Chile Japan Estonia Argentina carbon New Zealand ETS carbon tax carbon carbon tax tax tax Mexico Shanghai California CaT Portugal carbon tax pilot ETS Poland Ukraine carbon tax carbon tax carbon tax RGGI 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of GHG emissions covered in the jurisdiction Note: The size of the circles is proportional to the amount of government revenues except for initiatives with government revenues below US$100 million in 2018; the circles of these initiatives have an equal size. For illustrative purposes only, the nominal prices on April 1, 2019 and the coverages in 2019 are shown. The carbon tax rate applied in Argentina, Finland, Mexico and Norway varies with the fossil fuel type and use. The carbon tax rate applied in Denmark varies with the GHG type. The graph shows the average carbon tax rate weighted by the amount of emissions covered at the different tax rates in those jurisdictions. The middle point of each circle corresponds to the price and coverage of that initiative. 2 / Regional, national, and subnational carbon pricing initiatives 29 in revenue in 2018. Tax exemptions apply to 2.2 international aviation and shipping, export of covered Detailed overview of carbon fuels, the biofuel content of liquid fuels and the use of fossil fuels as raw materials in chemical processes.29 pricing initiatives Australia This section provides a detailed overview of carbon pricing initiatives around the world. The information On March 7, 2019, the Australian Government reported below focuses on key developments that amended the Emissions Reduction Fund (ERF) occurred in the last year. For developments on GHG Safeguard Mechanism.30 Key changes to the coverage and price levels across time, the reader is Safeguard Mechanism include: bringing baselines referred to the Carbon Pricing Dashboard and to up-to-date; simplifying baseline calculations to lower Figure 2 of this report.26 administrative costs by increasing options for using default emissions intensity values and prescribed Argentina production variables; and allowing baselines to be updated annually to reflect actual production. The The government of Argentina implemented a carbon changes would see baselines that are based more on tax on January 1, 2018 for most liquid fuels, replacing emissions intensity of output than historical absolute previous fuel taxes.27 The full rate of this tax was emissions,31 also known as grandparenting. based on the local currency equivalent of US$10/tCO2e on January 1, 2018 and varies quarterly according to The ERF is a program that involves the government the consumer price index. Due to the depreciation of purchase of emissions reductions using a reverse the Argentine peso in 2018, the equivalent carbon tax auction to select projects. As of December 18, 2018, rate is US$6/tCO2e from April 1, 2019. The revenue over 90 percent of the ERF—about A$2.3 billion is designated to multiple beneficiaries, including the (US$1.6 billion) out of the A$2.55 billion (US$1.8 billion) National Housing Fund, the Transport Infrastructure initially allocated—has been committed to 477 Trust, and the social security system, among others. domestic emission reduction projects representing For fuel oil, mineral coal, and petroleum coke, the tax 193 MtCO2e in abatement.32, 33 On February 25, 2019, rate became operational from the beginning of 2019, the government announced the Climate Solutions at 10 percent of the full tax rate, and will increase Package, a A$3.5 billion (US$2.44 billion) investment annually by 10 percentage points to reach 100 percent to deliver on Australia’s NDC targets.34 This package in 2028. 100 percent of this revenue is distributed includes the Climate Solutions Fund, which provides according to the Federal Revenue Distribution an additional A$2 billion (US$1.4 billion) to the System.28 The carbon tax was estimated to cover nearly-depleted ERF, expanding it to A$4.55 billion about 20 percent of the country’s GHG emissions and (US$3.2 billion) to support further domestic emission raise approximately ARS8.5 billion (US$300 million) reductions projects.35 26 https://carbonpricingdashboard.worldbank.org/ 27 The adopted carbon tax legislation differs from the initial Executive proposal of October 2017 as it is based on a lower rate than the initially proposed US$25/tCO2e and exempts jet fuel, butane, propane and natural gas. Source: Argentinian Ministry of the Environment and Sustainable Development, Argentina Participated in the Dialogue on Carbon Pricing Instruments in the Americas, January 23, 2018, http://ambiente.gob.ar/noticias/argentina-participo- del-dialogo-sobre-instrumentos-de-precio-al-carbono-en-las-americas/. 28 According to Law no. 23548 Coparticipación Federal de Recursos Fiscales. 29 Source: Argentinian Ministry of Justice and Human Rights, Tax on Liquid Combustibles and Natural Gas, accessed March 5, 2018, http://servicios.infoleg.gob. ar/infolegInternet/anexos/0-4999/365/texact.htm. 30 Source: Australian government - Department of the Environment and Energy, National Greenhouse and Energy Reporting (Safeguard Mechanism) Amendment Rule (No. 1) 2019, March 4, 2019, https://www.legislation.gov.au/Details/F2019L00258. 31 Source: Australian government - Department of the Environment and Energy, Explanatory Document, April 2019, https://www.environment.gov.au/system/ files/consultations/56b64cc6-6455-4aa1-9b72-d00b7e09bfb3/files/safeguard-mechanism-rule-amendment-explanatory-document.pdf. 32 Source: Australian government - Department of the Environment and Energy, Emissions Reduction Fund Update, December 18, 2018, http://www. environment.gov.au/climate-change/publications/emissions-reduction-fund-update. 33 Source: Australian government and Clean Energy Regulator, Carbon Abatement Contract Register, February 22, 2019, http://www.cleanenergyregulator.gov. au/ERF/project-and-contracts-registers/carbon-abatement-contract-register?Paged=TRUE&p_ID=164&p_manual_x0020_order=2%2e00000000000000&Vie w=%7bB54F4D19-14DE-4AC8-8653-73984BC42391%7d&PageFirstRow=301. 34 Source: Australian government - Department of the Environment and Energy, Climate Solutions Package, March 5, 2019, https://www.environment.gov.au/ climate-change/climate-solutions-package. 35 Source: Australian government - Department of the Environment and Energy, Climate Solutions Fund - Emissions Reduction Fund, accessed March 5, 2019, http://www.environment.gov.au/climate-change/government/emissions-reduction-fund. 30 Canada −− The ETS component is called the OBPS, which sets an emissions-intensity standard for each sector As of 2019, carbon pricing applies throughout under the system. The OBPS applies to power Canada. The Greenhouse Gas Pollution Pricing Act, generation and emissions-intensive and trade- adopted on June 21, 2018, established a federal exposed industrial facilities emitting more than carbon pricing initiative—also known as the federal 50  kilotons of carbon dioxide equivalent (ktCO2e) backstop system. This follows from the Pan-Canadian per year or any eligible facility that voluntarily Approach to Pricing Carbon Pollution announced by chooses to participate.40 Facilities with emissions the Prime Minister of Canada in October 2016. The above their standard must either pay a carbon approach gave provinces and territories the flexibility price in line with the federal fuel charge, submit to develop their own carbon pricing initiative and surplus credits purchased from facilities that outlined the criteria that all initiatives must meet, performed better than their limit, or submit thus establishing a federal benchmark for carbon eligible offset credits.41 pricing.36 The federal government also committed to implementing a federal carbon pricing initiative in The revenues from the federal backstop system provinces and territories that requested it or did not are returned to the provinces and territories where have a carbon pricing initiative meeting the federal they were collected.42 Provincial and territorial benchmark.37 governments that have voluntarily adopted the backstop will receive these revenues directly and can The federal backstop system is made up of decide how to use them. In other provinces, revenues components similar to a carbon tax and a baseline- from the federal fuel charge are returned to the and-credit ETS component:38 province through direct payments to households via Climate Action Incentive payments that can be claimed −− The tax-like component is a regulatory charge when residents file their income tax and benefit on fossil fuels with rates set at CAN$20/tCO2e return. Households in small and rural communities (US$15/tCO2e) in 2019, rising by CAN$10/tCO2e receive additional payments in recognition of their (US$8/tCO2e) per year to CAN$50/tCO2e increased energy needs and reduced access to (US$38/tCO2e) in 2022. It covers a broad range of energy-efficient transportation options. It is proposed fossil fuels—including various liquid, solid, and that the remainder be returned as financial support gaseous fuels—and combustible waste. The federal for sectors in the province particularly affected fuel charge does not generally apply to fuels used by the backstop system. The intent of the federal at industrial facilities whose emissions are covered government is to invest the revenues from the federal by the Output-Based Pricing System (OBPS).39 OBPS in GHG reduction projects in the jurisdiction where the revenue is raised. Further details on OBPS revenues will be released later in 2019. 36 Source: Government of Canada, Government of Canada Announces Pan-Canadian Pricing on Carbon Pollution, October 3, 2016, https://www.canada.ca/en/ environment-climate-change/news/2016/10/government-canada-announces-canadian-pricing-carbon-pollution.html. 37 Source: Government of Canada, Next Steps in Pricing Carbon Pollution, December 20, 2017, https://www.canada.ca/en/environment-climate-change/ news/2017/12/carbon_pricing_backgrounderministerslettertoprovincesandterritor.html. 38 Source: Canadian Department of Finance, Legislative and Regulatory Proposals Relating to the Greenhouse Gas Pollution Pricing Act and Explanatory Notes, January 2018, https://www.fin.gc.ca/drleg-apl/2018/ggpp-tpcges-eng.asp. 39 Source: Government of Canada, Technical Paper: Federal Carbon Pricing Backstop, January 5, 2018, https://www.canada.ca/en/services/environment/ weather/climatechange/technical-paper-federal-carbon-pricing-backstop.html 40 Source: Government of Canada, Technical Paper: Federal Carbon Pricing Backstop, January 5, 2018, https://www.canada.ca/en/services/environment/ weather/climatechange/technical-paper-federal-carbon-pricing-backstop.html; Government of Canada, Policy Regarding Voluntary Participation in the Output-Based Pricing System, March 2019. 41 Source: Government of Canada, Pricing Carbon Pollution for Large Industry: Backgrounder, December 20, 2018, https://www.canada.ca/en/environment- climate-change/services/climate-change/pricing-pollution-how-it-will-work/output-based-pricing-system/large-industry-backgrounder.html; Government of Canada, Notice of Intent to make regulations under Part 2 of the Greenhouse Gas Pollution Pricing Act, December 20, 2018. 42 Source: Government of Canada, How We’re Putting a Price on Carbon Pollution, November 20, 2018, https://www.canada.ca/en/environment-climate-change/ services/climate-change/pricing-pollution-how-it-will-work/putting-price-on-carbon-pollution.html. 2 / Regional, national, and subnational carbon pricing initiatives 31 Figure 11 / Summary map of key carbon pricing developments in the Canadian provinces and territories Yukon Northwest Nunavut Territories Ontario Newfoundland Québec and Labrador British Columbia Alberta Manitoba Saskatchewan Prince Edward Island New ­Brunswick Nova Scotia ETS implemented Federal backstop system fully imposed ETS and carbon tax implemented ETS implemented, federal backstop system partially imposed Carbon tax under consideration ETS under consideration, federal backstop system fully imposed Federal backstop system opt-in Carbon tax implemented, federal OBPS opt-in Note: A carbon tax in Northwest Territories (NWT) is to be introduced by July 1, 2019 pending passage of Bill 42 “An Act to Amend the Petroleum Products Tax Act”. As of April 1, 2019— the cut-off date of this report—Bill 42 has not been adopted yet. The NWT carbon tax will be changed from "Under consideration" to “Implemented or scheduled for implementation” once the bill has been formally adopted through legislation. The federal government has introduced several of provincial and territorial carbon pricing measures to the federal backstop system such as approaches against the federal benchmark, the exemptions on certain fuels to reduce the impact federal government announced the provinces on farmers and remote communities that have little and territories that met the federal benchmark means for reducing their emissions.43 and where the federal backstop system would apply as shown in Figure 11.44 For the provinces For the past two years, the federal government has and territories where the federal backstop worked with provinces and territories to ensure system applies, the federal OBPS took effect on there is a price on carbon in across Canada. On January 1, 2019 and the federal fuel charge on October 23, 2018, following a systematic assessment April 1, 2019. 43 Source: Canadian Department of Finance, Backgrounder: Proposed Refinements to the Federal Carbon Pollution Pricing System, accessed April 11, 2019, https://www.fin.gc.ca/n19/data/19-023_1-eng.asp?utm_source=CP+Daily&utm_campaign=8cfef9e47e-CPdaily19032019&utm_medium=email&utm_ term=0_a9d8834f72-8cfef9e47e-110276633. 44 Source: Government of Canada, Government of Canada Fighting Climate Change with Price on Pollution, October 23, 2018. 32 −− Three provinces that meet the federal In Prince Edward Island, only the federal OBPS benchmark will continue to implement their applies as the province has implemented its own existing carbon pricing initiatives: Alberta, carbon tax. British Colombia and Québec. −− Four provinces did not meet the federal −− Three provinces and one territory developed benchmark and the federal backstop system their own carbon pricing initiatives that meet applies to these provinces: Manitoba, New the federal benchmark: Newfoundland and Brunswick, Ontario, and Saskatchewan (in part).46 Labrador, Northwest Territories, Nova Scotia, and In Saskatchewan, the federal OBPS applies only to Prince Edward Island (for large industrial facilities, electricity generation and natural gas transmission the province opt for the federal OBPS). pipelines, as the province’s own OBPS for large industrial facilities meets the federal benchmark.47 −− Two territories and one province opted for the All four provinces are challenging the federal federal backstop system to apply: Nunavut, decision to impose the backstop system on them Yukon, and Prince Edward Island. To take the in court. unique circumstances of the territories into account, the federal backstop system will apply Key facts on the carbon pricing initiatives in place in in Nunavut and Yukon starting July 1, 2019.45 these provinces and territories are listed in Table 1. A more detailed overview is provided in Annex II. Table 1 / Summary of recent developments in key carbon pricing initiatives in the Canadian provinces and territories48 Jurisdiction Type and status Key developments Alberta ETS and carbon Following the Federal Court of Appeal’s ruling against the Trans Mountain Pipeline tax implemented expansion on August 30, 2018, the Alberta government announced its intention to pull out of the Canadian federal climate plan, which includes the pan-Canadian approach to Federal carbon pricing.49 benchmark met British ETS and carbon The British Columbia carbon tax increased from CAN$30/tCO2e to CAN$35/tCO2e Columbia tax implemented (US$23/tCO2e to US$26/tCO2e) on April 1, 2018 and will continue to increase annually by CAN$5/tCO2e (US$4/tCO2e) until the rate is CAN$50/tCO2e (US$38/tCO2e) in 2021.50 Federal benchmark met 45 Source: Government of Canada, Output-Based Pricing System, December 21, 2018, https://www.canada.ca/en/environment-climate-change/services/ climate-change/pricing-pollution-how-it-will-work/output-based-pricing-system.html. 46 Source: Government of Canada, Pricing Carbon Pollution for Large Industry: Backgrounder, December 20, 2018, https://www.canada.ca/en/environment- climate-change/services/climate-change/pricing-pollution-how-it-will-work/output-based-pricing-system/large-industry-backgrounder.html. 47 Source: Government of Canada, Saskatchewan and Pollution Pricing, 21 2019, https://www.canada.ca/en/environment-climate-change/services/climate- change/pricing-pollution-how-it-will-work/saskatchewan.html. 48 For further details on each carbon pricing initiative, please refer to: World Bank, Carbon Pricing Dashboard, accessed March 14, 2019, https:// carbonpricingdashboard.worldbank.org/. 49 Source: Government of Alberta, Trans Mountain Pipeline: Premier Notley, August 30, 2019, https://www.alberta.ca/release.cfm?xID=585428633B909-DEF9- 2B91-6773792AA5DA51A9. 50 Source: Ministry of Finance (British Columbia), Budget and Fiscal Plan 2018/19-2020/21, February 20, 2018, https://bcbudget.gov.bc.ca/2018/bfp/2018_ Budget_and_Fiscal_Plan.pdf. 2 / Regional, national, and subnational carbon pricing initiatives 33 Jurisdiction Type and status Key developments Manitoba Federal backstop The government of Manitoba renounced its intention to implement a provincial carbon system fully tax on October 3, 2018. This carbon tax did not meet the federal benchmark.51 Manitoba imposed is now challenging the imposition of the federal backstop system in court as it argues it already has a credible GHG reduction plan of its own.52 New ETS under New Brunswick’s carbon pricing plan did not meet the federal benchmark. Therefore, on Brunswick consideration March 21, 2019, the provincial government made amendments to its Petroleum Products Pricing Act to allow the federal fuel charge to be incorporated into the province.53 New Federal backstop Brunswick is challenging the imposition of the federal backstop system in court arguing system fully that it unfairly targets its businesses and unduly burden rural households who do not imposed have the option to use less fuel.54 The provincial government is also developing an alternative OBPS for large industrial facilities.55 Newfoundland ETS and carbon The Newfoundland and Labrador carbon tax and provincial baseline-and-credit ETS and Labrador tax implemented were implemented as of January 1, 2019.56 The ETS is called the Performance Standards System (PSS) and it applies to large industrial facilities and electricity generation. The Federal carbon tax covers fuels primarily used in transportation, building heating, and electricity benchmark met generation and starts at CAN$20/tCO2e.57 Both initiatives build on the province’s Management of Greenhouse Gas Act, which was adopted in 2016 and already included provisions for a carbon tax and ETS. These provisions were, however, not in force yet. Therefore, the provincial government adopted required amendments in Fall 2018. Northwest Carbon tax under The Northwest Territories (NWT) carbon tax is planned to be introduced as part of the Territories consideration58 Petroleum Products Tax Act starting at CAN$20/tCO2e (US$15/tCO2e) on July 1, 2019, increasing annually in July by CAN$10 (US$8/tCO2e) to reach CAN$50/tCO2e (US$38/tCO2e). Federal The carbon tax will cover almost all fossil fuels as part of the territory’s Made-in-the-North benchmark met approach to incentivize investments in initiatives and programs that lead to greater use of renewable and cleaner fuels while minimizing impacts on the cost of living and doing business. Nova Scotia ETS implemented Nova Scotia passed its final ETS regulations in November 2018 and its cap-and-trade ETS launched in January 2019. The ETS compliance period is 2019–2022. The program Federal applies to the industry, electricity, building, and transport sectors and covers benchmark met approximately 80 percent of GHG emissions in Nova Scotia.59 The ETS legislation includes the ability to develop offsets. However, offsets will not be available to the ETS at the start date of January 1, 2019. The province intends to develop offset protocols or adapt them from existing protocols in other jurisdictions.60 In May 2018, Nova Scotia became a member of the Western Climate Initiative (WCI), a collaboration of American and Canadian subnationals advancing emissions trading, though they are not linked for the purposes of trading allowances across jurisdictions. Nunavut Federal backstop Nunavut has been working with the federal government on a carbon pricing approach system opt- in that considers its unique circumstances, including high costs of living and energy and challenges with food security. This resulted in several fuel exemptions additional to the federal ones and a delayed start of the federal backstop system to July 1, 2019. 51 Source: Government of Manitoba, Manitoba Rejects Carbon Tax, Moves Ahead With Made-In-Manitoba Climate and Green Plan, October 3, 2018, https://news.gov.mb.ca/news/index.html?item=44667&posted=2018-10-03. 52 Source: Government of Manitoba, Manitoba to Challenge Ottawa’s Carbon Tax in Court, April 3, 2019, https://news.gov.mb.ca/news/index. html?item=45161&posted=2019-04-03. 53 Source: Government of New Brunswick, Amendments Introduced to Allow for Carbon Tax, March 20, 2019, https://www2.gnb.ca/content/gnb/en/news/ news_release.2019.03.0182.html. 54 Source: Government of New Brunswick, Commitment to Made-in-New Brunswick Approach to Climate Change, December 5, 2018, https://www2.gnb.ca/ content/gnb/en/news/news_release.2018.12.1311.html. 55 Source: Government of New Brunswick, Get the Facts on the Federal Carbon Tax, accessed April 11, 2019, https://www2.gnb.ca/content/gnb/en/corporate/ promo/carbon_tax.html. 56 Source: Statutes of Newfoundland and Labrador 2018, An Act to Amend the Management of Greenhouse Gas Act and the Revenue Administration Act, December 5, 2018, https://www.assembly.nl.ca/Legislation/sr/Annualstatutes/2018/1840.chp.htm. 57 Source: CBC News, Why the Lax Tax? Finance Minister Says Muskrat Burden Played Role in Carbon Pricing Social Sharing, October 23, 2018, https://www.cbc.ca/ news/canada/newfoundland-labrador/carbon-tax-newfoundland-labrador-1.4874616. 58 The NWT carbon tax is to be introduced by July 1, 2019 pending passage of Bill 42 “An Act to Amend the Petroleum Products Tax Act”. As of April 1, 2019— the cut-off date of this report—Bill 42 has not been adopted yet. The NWT carbon tax will be considered “scheduled for implementation” once it has been formally adopted through legislation. Any upcoming developments regarding the status of the NWT carbon tax will be included in the next edition of the State and Trends of Carbon Pricing report and the Carbon Pricing Dashboard. 59 Source: Government of Nova Scotia, Cap-and-Trade Program Regulations Made under Section 112Q of the Environment Act, November 13, 2018, https://www.novascotia.ca/just/regulations/regs/envcapandtrade.htm. 60 Source: Government of Nova Scotia, Nova Scotia’s Cap and Trade Program - Regulatory Framework, October 2018, https://climatechange.novascotia.ca/sites/ default/files/Nova-Scotia-Cap-and-Trade-Regulatory-Framework.pdf. 34 Jurisdiction Type and status Key developments Ontario ETS under On October 31, 2018, the new Ontario government formally abolished the Ontario cap-and- consideration trade program61 following measures put in place in July 2018 to wind-down the program. Since then, the provincial government has been working to compensate industrial facilities Federal backstop for voided allowances they bought at earlier auctions. This process was completed by March system fully 25, 2019 with compensation totaling to CAN$5 million (US$4 million).62 imposed On February 12, 2019, the provincial government announced its intention to develop a provincial baseline-and-credit ETS that shows similarities with the federal OBPS.63 However, since the deadline to develop a carbon pricing approach that meets the federal benchmark has already passed, the federal backstop system was imposed. Ontario is challenging this in court, arguing that the backstop system exceeds the power of the federal government.64 Prince Carbon tax The Prince Edward Island carbon tax has been in force since April 1, 2019.65 The carbon Edward implemented tax is part of the province’s Climate Leadership Act and broadly similar to the federal fuel Island charge, starting at CAN$20/tCO2e (US$15/tCO2e) and increasing annually. Prince Edward Federal OBPS Island has been working with the federal government to tailor the carbon tax to its own only opt-in region. This resulted in additional exemptions for certain fuels and allowed the provincial government to partially offset the impact of the carbon tax on the overall tax burden by reducing the excise tax on gasoline.66 At the request of the province, the federal OBPS for large power generation and industrial facilities was implemented as of January 1, 2019.67 Québec ETS implemented Since January 1, 2018, emitters from capped sectors in the Québec Cap-and-Trade System that reported emissions between 10,000 tCO2e/year and 25,000 tCO2e/year may Federal voluntarily register to the initiative as a covered entity. benchmark met Saskatchewan ETS As of January 1, 2019, Saskatchewan implemented its own baseline-and-credit ETS as implemented part of its Prairie Resilience climate change strategy. The Saskatchewan OBPS covers industrial facilities that emit over 25 ktCO2e, with a voluntary opt-in for facilities between Federal backstop 10–25 ktCO2e.68 system partially imposed Saskatchewan has also implemented non-pricing regulatory mechanisms that require emission reductions in the electricity sector and methane emissions from upstream oil and gas.69, 70 These regulations cover 45 percent of GHG emissions, in addition to the 12  percent covered under the Saskatchewan OBPS. The Saskatchewan OBPS only partially meets the federal benchmark as it does not cover electricity generation and natural gas transmission pipelines facilities. Thus, the federal OBPS was imposed on those sectors. In addition, the federal fuel charge also applies.71 Saskatchewan is challenging the imposition of the federal backstop system in court, questioning the federal government’s constitutional right to do so.72 Yukon Federal backstop Yukon has been working with the federal government on a carbon pricing approach system opt-in that considers its unique circumstances to avoid putting the territory’s competitiveness at a disadvantage and penalizing citizens who rely on fossil fuels, while rewarding businesses that invest in clean technology and operations.73 This resulted in several fuel exemptions in addition to the federal ones and a delayed start of the federal backstop system to July 1, 2019. 61 Source: Government of Ontario, Cap and Trade Cancellation Act, 2018, September 14, 2018, https://www.ontario.ca/laws/statute/18c13. 62 Source: Government of Ontario, Ontario Closes the Book on Cap and Trade Carbon Tax Era, March 25, 2019, https://news.ontario.ca/ene/en/2019/03/ontario- closes-the-book-on-cap-and-trade-carbon-tax-era.html. 63 Source: Government of Ontario, Making Polluters Accountable: Industrial Emission Performance Standards, February 12, 2019, https://ero.ontario.ca/ notice/013-4551. 64 Source: Government of Ontario, Ontario Files Arguments to Challenge the Federal Government’s Carbon Tax, September 14, 2018, https://news.ontario.ca/ene/ en/2018/09/ontario-files-arguments-to-challenge-the-federal-governments-carbon-tax.html/. 65 Source: Minister of Finance (Prince Edward Island), Climate Leadership Act - Chapter 41, December 5, 2018, http://www.assembly.pe.ca/bills/pdf_ chapter/65/3/chapter-41.pdf. 66 Source: Government of Prince Edward Islands, Carbon Levy, February 22, 2019, https://www.princeedwardisland.ca/en/information/finance/carbon-levy. 67 Source: Government of Canada, Prince Edward Island and Pollution Pricing, November 23, 2018, https://www.canada.ca/en/environment-climate-change/ services/climate-change/pricing-pollution-how-it-will-work/prince-edward-island.html. 68 Source: Saskatchewan Gazette, The Management and Reduction of Greenhouse Gases (Standards and Compliance) Regulations, December 14, 2018, http://www.publications.gov.sk.ca/freelaw/documents/English/Regulations/Regulations/M2-01R3.pdf. 69 The Management and Reduction of Greenhouse Gases (General and Electricity Producer) Regulations, http://www.publications.gov.sk.ca/freelaw/documents/ English/Regulations/Regulations/M2-01R1.pdf 70 The Oil and Gas Emissions Management Regulations, http://www.publications.gov.sk.ca/freelaw/documents/English/Regulations/Regulations/O2R7.pdf 71 Source: Government of Canada, Pollution Pricing: Technical Briefing, November 14, 2018, https://www.canada.ca/en/environment-climate-change/services/ climate-change/pricing-pollution-how-it-will-work/putting-price-on-carbon-pollution/technical-briefing.html. 72 Source: Government of Saskatchewan, Province Challenging Federal Government’s Ability to Impose a Carbon Tax, April 25, 2018, https://www.saskatchewan.ca/ government/news-and-media/2018/april/25/carbon-tax-case. 73 Source: Government of Yukon, Proposed Framework for Government of Yukon Carbon Price Rebate Announced, January 17, 2019, https://yukon.ca/en/news/ proposed-framework-government-yukon-carbon-price-rebate-announced. 2 / Regional, national, and subnational carbon pricing initiatives 35 China reflected in the ETS pilot regions as well. In the past year, the ETS-related responsibilities in all pilots were China continues to work on the implementation of its moved from the provincial Development and Reform national ETS since its official launch in December 2017. Commission to the Ecology and Environment Bureau. On March 29, 2019, the Chinese government released The consolidation of the environmental responsibilities the draft ETS regulation for public consultation. in one ministry could help the alignment of different The draft ETS regulation sets the legal basis for the environmental strategies and policies including the national ETS and contains the governance structure national ETS. For example, the 2018-2020 Three-year and ETS responsibilities of the national and local Action Plan for Winning the Blue-Sky War aims to government bodies, covered facilities and verifiers. It tackle air pollution, but also recognizes GHG emission also describes measures against market manipulation reductions as a co-benefit.75 The 13th Five Year Plan for and enforcement mechanisms to ensure all parties Renewable Energy Development mentions a possible involved meet their obligations in a timely manner link between a renewable certificate market and against set standards. The development of the ETS carbon markets.76 regulation is part of a first phase of the two-phased roadmap consisting of infrastructure development In preparation for the launch of the national ETS, and simulated trading that was published at the several ETS pilots have introduced measures to official ETS launch.74 The roadmap also stated that strengthen their ETS and align with known design the power sector will be the first sector to have details of the national ETS. Measures included compliance obligations under the ETS with the decreasing free allocation shares in some pilots as ETS gradually expanding to include another seven well as transitioning free allocation methods from sectors, and that benchmarking will be the main grandfathering to benchmarking. The Beijing pilot ETS approach for free allocation. Other design details is transitioning its free allocation approach for existing of the national ETS such as cap-setting, allowance facilities in the power sector from using facility- allocation, management of verification agencies, and specific historical emission intensities to sector- trading rules still have to be clarified. The long process wide benchmarking. According to its 2017 allocation to develop the national ETS reflects the challenges plan released in February 2018, the free allocation around designing a sound ETS with substantial shares in the Beijing pilot ETS decreased by up to differences in knowledge and capacity between the ten percentage points for existing facilities in various subnational regions and companies. sectors including cement and petrochemicals.77 In addition, an adjustment mechanism was created to The release of the draft ETS regulations follows avoid overallocation as a result of plant closures or the approval of the National People's Congress of reductions in production beyond a certain threshold. China of the plan to restructure the State Council in For the first time since its launch, the cap of the March 2018, including the establishment of a new Chongqing pilot ETS for 2017 was lower than what Ministry of Ecology and Environment to replace the entities reported that they expected they would need Ministry of Environmental Protection. In addition to according to the allocation plan released in March environmental governance, the new ministry absorbs 2018, which could indicate that some companies the climate change responsibilities previously under would face a shortage.78 In the Guangdong 2018 the National Development and Reform Commission allocation plan released in July 2018, five benchmark and takes charge of the development of the national values used to determine free allocation to power ETS. The governance transition at the national level is generation were decreased. 74 Source: National Development and Reform Commission, National Development and Reform Commission Issues National Carbon Emissions Trading Market Construction Plan, December 18, 2017, http://www.ndrc.gov.cn/gzdt/201712/t20171220_871134.html. 75 Source: Library of Congress, China: 2020 Air Pollution Action Plan Released, August 16, 2018, http://www.loc.gov/law/foreign-news/article/china-2020-air- pollution-action-plan-released/. 76 Source: National Development and Reform Commission, Notice on the 13th Five-Year Plan for Renewable Energy Development, 2016, http://www.ndrc.gov.cn/ zcfb/zcfbghwb/201612/t20161216_830269.html. 77 Source: Beijing Municipal Commission of Development and Reform, Notice on the Approval of Key Quota Emission Units for 2017 Annual Quotas, February 12, 2018, http://www.bjpc.gov.cn/zwxx/tztg/201802/t12508458.htm. 78 Source: Chongqing Development and Reform Commission, About Grasping the 2017 Annual Carbon Emissions – Notice of Quota Payment, November 4, 2018, https://www.cqggzy.com/tzgg/001006/20181108/43c41839-85c3-4d86-ac09-09bff4165d4c.html. 36 Box 3 / Chinese ETS pilot market highlights for 2018 The carbon markets in most ETS pilots continue to be active in 2018, with levels of activity varying across regions. Different price levels are the result of differences in cap stringency and market confidence. The government is still investigating how to tackle this issue on price differences if allowances from ETS pilots are permitted in the national ETS. In most pilot regions, the majority of trading occurred in Q2 or Q3, which coincides with the compliance deadlines in those pilots as shown in Figure 12. For Beijing and Hubei, this was accompanied with a price increase also shown in Figure 12; in Hubei, Q3 accounted for 57 percent of the annual trade on the market and it reached the highest traded value of all pilots in any quarter of 2018 with CNY¥177 million (US$26 million). In Shenzhen and Guangdong, the traded volume spiked in Q4, where it grew to more than twice that of the other three quarters combined, with the underlying reason for this growth remaining unclear. In contrast, prices and traded volume in Tianjin and Chongqing were relatively low. Overall, prices in most pilots have changed little in 2018 compared to previous years. Most pilots started with significantly higher prices when they were launched in 2013 and 2014. The initial high prices were affected by government guidance such as the auction floor price. This was followed by a decline in prices after the first compliance year when market participants gained better insight in the carbon market and the economy slowed down leading to lower-than- predicted carbon emissions. Prices in most pilots have been fluctuating around the same level ever since. Only Guangdong and Hubei have shown some structural price increases in the recent years due to measures to improve market confidence with more detailed compliance timelines, yearly allocation plans, and offset rules. Figure 12 / Cumulative trading volume and value of the Chinese ETS pilots in 2018 16 200 Value of traded allowances (CNY¥ million) Cumulative volume of traded allowances (MtCO2e) 180 14 160 12 140 10 120 8 100 80 6 60 4 40 2 20 0 0 Shenzhen Shanghai Beijing Guangdong Tianjin Hubei Chongqing Fujian Q1 – volume Q2 – volume Q3 – volume Q4 – volume Q1 – value Q2 – value Q3 – value Q4 – value 2 / Regional, national, and subnational carbon pricing initiatives 37 Several ETS pilots have also been aligning free European Union allocation to facilities with more recent activity levels. In Shanghai, the base years for determining free In February 2018, European lawmakers formally allocation has changed for the water supply sector approved the EU ETS phase 4 (2021–2030) reforms. from 2016–2017 and for the other sectors from The process leading up to this moment reflect the 2014–2016 to 2015–2017 for the compliance year challenges in adapting and strengthening a well- 2018.79 Furthermore, the base years to determine the established ETS, which is also affected by the EU’s historical intensity for free allocation in 2018 changed diverse and layered decision-making process with from 2014–2016 to 2015–2017 in the Beijing pilot ETS.80 three different legislative bodies representing the interests of 28 Member States. From the start of phase In March 2018, Taiwan, China, published the 3 (2013–2020) until 2018, prices remained consistently GHG Reduction Action Plan. The plan proposes below €10/tCO2e (US$11/tCO2e) due to a large surplus to implement a cap-and-trade system, calculate of allowances resulting from the economic crisis and baseline emissions, and set up regulations—albeit high import of international credits,84 and a lack of without a precise timeline. On this basis, the central mechanisms to address this surplus. Since 2014, industry authorities in charge of the six major EU lawmakers have been introducing measures sectors81 developed GHG Emissions Control Action to address this surplus—first through temporarily Programs to provide more detail on each sector’s back-loading allowances, followed by a permanent responsibilities to reduce their emissions. In addition, market stability reserve (MSR)—but the carbon prices a series of subsidiary regulations has been formulated only started to markedly increase after the post- in preparation for the cap-and-trade system. This 2020 reforms had been adopted. Over the course of includes the 2018 Regulations Governing GHG Offset 2018, EUA prices reached the level of €20–25/tCO2e Program Management, which provides an opportunity (US$22-28/tCO2e) and have remained around that for companies to acquire offsets credits.82 level ever since.85 The reforms include increasing the linear annual cap reduction from 1.74  percent to 2.2 Colombia percent, increasing the impact of MSR on the surplus by withholding more allowances from the market and On July 27, 2018, Colombia adopted its climate bill, cancelling a portion of allowances in the MSR, and which enables the government to establish an ETS.83 revising rules related to free allocation of allowances. The ETS needs to be compatible with Colombia’s Free allocation will be more aligned with recent national GHG emission reduction targets and would activity levels, the benchmark levels will be updated provide more certainty in achieving these targets in every five years to take technological progress into addition to its existing carbon tax. The climate law account, and the free allowances for sectors not also specifies that allowance distribution under an deemed at risk of carbon leakage will be phased out. ETS should primarily take place through auctions with These measures will increase the carbon price signal revenues directed towards the National Environment experienced by emitters. The EU is still working on Fund. To avoid double taxation, the climate bill several specific regulations related to free allocation allows payments under the existing carbon tax to be including benchmarks and updating free allocation recognized as an approach for emitters to meet their that will be completed in the course of 2020. compliance obligations under a potential future ETS. 79 Source: Shanghai Municipal Development and Reform Commission, Notice of the Shanghai Municipal Development and Reform Commission on Issuing and Distributing the Shanghai 2018 Carbon Emissions Quota Allocation Plan, March 19, 2019, http://www.shdrc.gov.cn/gk/xxgkml/zcwj/zgjjl/35150.htm. 80 Source: Beijing Municipal Commission of Development and Reform, Notice on the Approval of Key Quota Emission Units for 2017 Annual Quotas, February 12, 2018, http://www.bjpc.gov.cn/zwxx/tztg/201802/t12508458.htm. 81 Energy, manufacturing, transportation, residential and commercial, agriculture, and environment. 82 Source: Taiwan, China, Climate Change: Global Challenge Requiring Global Response, November 2, 2018, https://www.roc-taiwan.org/fj_en/post/709.html. 83 Source: Congress of Colombia, Guidelines for the Management of Climate Change, July 27, 2018, http://es.presidencia.gov.co/normativa/normativa/LEY%20 1931%20DEL%2027%20DE%20JULIO%20DE%202018.pdf. 84 Source: European Commission, Market Stability Reserve, accessed April 11, 2019, https://ec.europa.eu/clima/policies/ets/reform_en. 9 85 Source: European Energy Exchange, Market Data - Environmental Data, accessed April 11, 2019, https://www.eex.com/en/market-data/environmental- markets/spot-market/european-emission-allowances#!/2019/04/01. 38 In addition to measures strengthening the carbon emissions of the fuels are now used instead of only price signal, the reforms also introduced two low- combustion emissions, which effectively means that carbon funding mechanisms to support for low- the carbon tax component per volume fuel consumed carbon investments: i) the Modernization Fund to would increase.90 To limit the additional tax burden due support investments in energy efficiency and the to this change, the carbon tax rate of these fuels was modernization of the energy sector in lower-income lowered from €62/tCO2e (US$70/tCO2e) to €53/tCO2e Member States, and ii) the Innovation Fund to (US$60/tCO2e). The carbon tax for transport fuels provide financial support for projects in the areas of remains at €62/tCO2e (US$70/tCO2e) as it already took renewable energy and carbon capture and storage/ the full lifecycle emissions into account. In addition, utilization.86 This mix of policy instruments will help the partial carbon tax exemption for combined heat the EU meet its NDC targets that have been set in and power plants was turned into a partial energy line with a 2 °C pathway.87 This illustrates that further tax exemption, resulting in a small increase of the tax changes will be needed to align policies with climate burden on coal to support the transition away from targets and ultimately for the EU ETS to drive long coal use.91 term decarbonization in line with the ambition of the Paris Agreement for the global temperature to stay These changes are reflective of the latest well below 2 °C. developments in the long history of balancing incentives to reduce GHG emissions with the cost of The EU continues to seek out international living and competitiveness of local businesses in the cooperation. In April 2018, the European Commission first country with a carbon tax. Following a series held its first policy dialogue with China’s newly-created of reforms that saw the carbon tax rate increase in Ministry of Ecology and Environment, reaffirming combination with lowering income taxes and social continued bilateral cooperation in developing the security contributions, Finland is currently greening its China national ETS.88 At the Global Climate Action tax system to incentivize transitioning to a low-carbon Summit held in September 2018, the EU and California economy and abandoning coal by 2030.92 To this end, agreed that officials from the EU and California would the government has been gradually strengthening the step up the frequency of exchanges, including on carbon tax component in the energy tax and shifting principles for alignment and the role of carbon pricing the tax burden to higher carbon fuels. in sending near- and long-term investment signals for transformative technologies, addressing economic France competitiveness, and maximizing public benefits for use of program revenues.89 The France carbon tax was set last year on an increasing price trajectory towards €86.2/tCO2 Finland (US$97/tCO2) in 2022, but this plan has been modified after social protests.93 Since November 2018, large From January 1, 2019, Finland changed the scale protests have been taking place, spurred by methodology to determine the CO2 emission factor opposition to the carbon tax rate in a period when associated with heating fuels and fuels for work fuel prices are rising. Since its introduction in 2014, machines covered under the carbon tax component of the carbon tax has increased six-fold from €7/tCO2e its energy tax. The emission factor of the full lifecycle (US$8/tCO2e) to €44.6/tCO2e (US$50/tCO2e) within 86 Source: European Commission, EU Emissions Trading System (EU ETS), accessed March 6, 2019, https://ec.europa.eu/clima/policies/ets_en. 87 Source: European Commission, EU and the Paris Climate Agreement: Taking Stock of Progress at Katowice COP, October 26, 2018, https://eur-lex.europa.eu/ legal-content/EN/TXT/?uri=COM:2018:716:FIN. 88 Source: European Commission, Emissions Trading: European Commission and China Hold First Policy Dialogue, April 26, 2018, https://ec.europa.eu/clima/ news/emissions-trading-european-commission-and-china-hold-first-policy-dialogue_en. 89 Source: European Commission, EU and California to Step up Cooperation on Carbon Markets, September 13, 2018, https://ec.europa.eu/clima/news/eu-and- california-step-cooperation-carbon-markets_en. 90 Source: Parliament of Finland, Changes in Energy Taxation in 2019, January 11, 2019, https://www.vero.fi/tietoa-verohallinnosta/verohallinnon_esittely/ uutiset/uutiset/2019/energiaverotukseen-muutoksia-2019/. 91 Source: Parliament of Finland, The Government’s Bill to the Parliament with Proposals for Amending the Legislation on Energy Taxation, 2018, https://www.eduskunta.fi/SV/vaski/HallituksenEsitys/Sidor/RP_191+2018.aspx. 92 Source: Parliament of Finland, Government’s Proposal to the Parliament to Amend Chapter 1, Section 2 of the Act on the Prohibition of Coal Energy and on Proceedings in the Market Court, accessed April 11, 2019, https://www.eduskunta.fi/FI/vaski/HallituksenEsitys/Sivut/HE_200+2018.aspx. 93 Source: French Government, Finances for 2019, December 28, 2018, https://www.legifrance.gouv.fr/affichTexte. do?cidTexte=JORFTEXT000037882341&dateTexte=&categorieLien=id. 2 / Regional, national, and subnational carbon pricing initiatives 39 four years. Agriculture, taxis and trucks are exempted Kazakhstan from the carbon tax to protect their competitiveness. In addition, the government is using part of carbon tax Kazakhstan relaunched its ETS on January 1, 2018 revenues to cut labor and corporate taxes and provide after it suspended it on April 8, 2016. The suspension financial assistance for low-income households on was due to the impact of a drop in global oil prices their energy bill.94 Whilst in general France does not on Kazakhstan’s economy and accompanying earmark revenues, the reform was accompanied industry protests.99 During the suspension period, by some support to the energy transition, including Kazakhstan—in response to the economic downturn— support for alternatively-source vehicles and tax credit made several amendments to the ETS demonstrating to households improving energy efficiency of their redesign of the original ETS by introducing more residence. Originally, the French carbon tax would flexibility measures. Changes include allowing have increased by 23 percent in 2019 and as much as installations to choose between two approaches for 19 percent by 2020. However, the tax rate in 2019 now receiving free allowances; about a third of the covered remains at the 2018 rate of €44.6/tCO2 (US$50/tCO2), installations chose free allocation based on historical and following nation-wide consultations, it is not likely emissions and two-thirds chose product-based to increase in the near-term. benchmarks with the possibility of updating their free allocation with capacity changes.100 In addition, the Iceland cap is set to reduce by 5 percent by 2020 compared to 1990. These developments in Kazakhstan underline The Iceland carbon tax rate increased by 10 percent the importance of including flexibility mechanisms to approximately ISK3850/tCO2 (US$36/tCO2) on in the design of a carbon pricing initiative in case of January 1, 2019. The higher tax rate will generate unexpected circumstances. ISK550 million (US$39 million) in additional carbon tax revenue including additional revenues related to Korea, Republic of the value added tax (VAT).95 The carbon tax rate will grow with a further 10 percent on January 1, 2020,96 The Korea ETS has entered its second phase as of increasing the carbon tax to about 15 percent of January 1, 2018, which will be in effect until 2020.101 the total excise tax rate on transport fuels.97 These Key changes in the new phase include the introduction increases are part of the Climate Action Plan 2018– of auctioning up to three percent of the required 2030 to bolster Iceland’s efforts in reaching its NDC and allowances in certain sectors, new banking rules, and to help meet their goal of carbon neutrality by 2040.98 allowing the restricted use of international credits. In The focus of the carbon tax increases is to phase out addition, benchmarking will be more widely applied fossil fuels in the transport sector. Iceland has already for the distribution of free allowances and allocated been making headway in greening its transportation based on facility efficiency. Thus, the power, waste, with the electric vehicle purchases having more than and industry sectors will be added to the group of tripled in 2018 compared to 2016. The abolishment sectors were already receiving free allocation via of excise taxes and VAT for electric vehicles played a benchmarks such as the oil refining, cement, and significant role in this surge. The Climate Action Plan aviation industry.102 These changes are the result of will be subject to public consultation with an updated consultations with associated government bodies strategy published in 2019. 94 Source: Ibid. 95 Source: Icelandic government, Budget Bill 2019, 2018, https://www.stjornarradid.is/lisalib/getfile.aspx?itemid=d5ab9587-b5df-11e8-942c-005056bc4d74. 96 Source: Icelandic Parliament, Act on Amendments to Various Laws Relating to the Budget for 2019, December 21, 2018, https://www.althingi.is/altext/ stjt/2018.138.html. 97 Authors’ calculations based on Source: OECD, Taxing Energy Use 2018 - Iceland, 2018, https://www.oecd-ilibrary.org/taxation/taxing-energy-use- 2018_9789264289635-en. 98 Source: Government of Iceland, Iceland Launches New Climate Strategy, Boosting Efforts to Reach Paris Goals, September 10, 2018, https://www.government. is/news/article/?newsid=c7ab2ec0-b515-11e8-942c-005056bc4d74. 99 Source: German Emissions Trading Authority, Emissions Trading in Kazakhstan Recommendations for Cap Setting, accessed April 11, 2019, https://www.dehst.de/ SharedDocs/downloads/EN/publications/country-study-kazakhstan.pdf?__blob=publicationFile&v=2. 100 Source: Ministry of Energy of the Republic of Kazakhstan, Official Web Site, accessed March 6, 2019, http://kz.energo.gov.kz/index.php?id=2. 101 Source: Korean Ministry of Environment, Greenhouse Gas Emissions Trading Scheme, December 12, 2017, http://eng.me.go.kr/eng/web/index. do?menuId=450. 102 Source: Korean Ministry of Environment, The Total Emission Permits Allocated Set at 1,777,130,000 Tons for the next Three Years, July 2, 2018, http:// eng.me.go.kr/eng/­ web/board/read.do?pagerOffset=­ 0&maxPageItems=­ 10&maxIndexPages=­ 10&searchKey=­ content&searchValue=­ ETS&menuId=­ 21&orgCd=&boardId=­903010&boardMasterId=­522&boardCategoryId=&decorator=. 40 to boost liquidity in the Korean carbon market and investments.103 Under this draft National Climate distribute the allowances more proportionally to Agreement, the carbon floor price would be set actual emissions while strengthening the price signal at €12.3/tCO2 (US$15/tCO2e) in 2020, rising to to reduce emissions. €31.9/tCO2 (US$39/tCO2e) in 2030. This is lower than the original trajectory of €18/tCO2 Mexico (US$22/tCO2e) in 2020 to €43/tCO2 (US$53/tCO2e) in 2030. In addition, on March 13, 2019, the Dutch On October 19, 2018, the Mexican government government announced its intention to explore released the draft regulation for establishing a pilot introducing a carbon tax for industry. The carbon tax ETS for public consultation. In December 2018, a new would incorporate the use of EU ETS benchmarks to administration took office and decided to review the ensure the least efficient facilities face the highest draft to strengthen capacities in the government and carbon costs. Revenues from the industry carbon start a series of consultations among civil society tax would be earmarked to finance green industrial and government. The start of the pilot is planned activities.104 The announcement of a carbon tax on for 2020 and would last two years in addition to one industry is the result of a government-commissioned year for transition to the next phase. The pilot ETS research report that the current plans are insufficient intends to cover the power, oil and gas, and industrial to meet the country’s climate goals for 2030.105 The sectors. Entities with annual emissions greater than Dutch government is currently working out the 100 ktCO2e during 2016–2018, or in any year from the details of the carbon tax, a process that involves both launch of the pilot, will be covered under the pilot ETS. industry and civil society organizations. The draft regulation follows the adopted amendments New Zealand to the General Law on Climate Change by the Mexican Senate in April 2018, which included a mandate for On December 12, 2018, the government announced the government to establish an ETS to incentivize decisions to strengthen the New Zealand ETS, which cost-effective emission reductions measures while will support New Zealand to meet its climate change maintaining the competitiveness of its industry in targets, including its NDC targets. The decisions the international market. The ETS would be part of include implementing a cap, introducing auctioning a suite of measures—including its existing carbon in the ETS, replacing the current price ceiling of­ tax—to enable Mexico to reach its NDC targets. The NZ$25/tCO2e (US$18/tCO2e) with a cost containment government continues to work on the development of reserve, strengthening market governance, limiting rules and guidelines for the pilot phase, with the final the potential use of international credits, and draft due to be published in 2019. investigating a price floor.106 Netherlands The Government will decide on further policy reforms in mid-2019. Reforms under consideration include On December 21, 2018, a draft for a National simplified forestry-sector accounting options, a Climate Agreement was published, maintaining potential price floor mechanism, and options for earlier intentions from the Dutch government to the phase-down of free allocation to emissions- introduce a carbon floor price for the electricity intensive and trade-exposed industries. Options sector to strengthen market certainty for renewable for strengthening the ETS market governance 103 Source: Dutch climate council, Design of the Climate Agreement, December 21, 2018, https://www.klimaatakkoord.nl/documenten­ /publicaties/2018/12/21/­ ontwerp-klimaatakkoord. 104 Source: Dutch Ministry of Economic Affairs and Climate, The Government’s Reaction on the Draft Climate Agreement, March 13, 2019, https://www. rijksoverheid.nl/binaries/rijksoverheid/documenten/kamerstukken/2019/03/13/kamerbrief-met-eerste-reactie-kabinet-op-de-doorrekening-van-het- ontwerp-klimaatakkoord/kamerbrief-met-eerste-reactie-kabinet-op-de-doorrekening-van-het-ontwerp-klimaatakkoord.pdf. 105 Source: Reuters, Dutch to Introduce “reasonable” Corporate Tax on Carbon Dioxide, March 13, 2019, https://uk.reuters.com/article/us-climatechange- netherlands-tax/dutch-to-introduce-reasonable-corporate-tax-on-carbon-dioxide-idUKKBN1QU215. 106 Source: New Zealand Ministry for the Environment, Proposed improvements to the NZ ETS, accessed May 10, 2019, https://www.mfe.govt.nz/climate-change/ proposed-improvements-nz-ets. 2 / Regional, national, and subnational carbon pricing initiatives 41 framework and improving the penalties and Senegal compliance regime are also under consideration. These policy reforms will feed into a single Bill Senegal is exploring carbon pricing as part of the to amend the Climate Change Response Act. It is policy options to reach the objectives of its NDC.112 expected that this Bill will be introduced in the In 2018, the government organized consultations second half of 2019. In addition, the Government is with stakeholders in the public and private sector to actively considering bringing agriculture into the ETS assess initial design options for the carbon pricing as a fully covered sector.107 policy applicable to its economy. In 2018, a study on the opportunity to introduce carbon pricing at In parallel to the reforms to the New Zealand ETS, the domestic level was carried out. The government New Zealand and the EU announced plans to identified the need for additional analyses to explore strengthen their bilateral cooperation on emissions the main elements to design a potential carbon tax in trading on December 17, 2018. New Zealand and the detail. EU will hold regular technical and policy meetings to discuss the key design features and implementation Singapore of their ETSs, respective developments and possible implementation challenges, with a view to exploring On January 1, 2019, Singapore implemented its options towards enhanced cooperation between the carbon tax. The carbon tax is set at S$5/tCO2e two systems.108 (US$4/tCO2e) from 2019 to 2023. Singapore will review the carbon tax rate by 2023, with plans to Portugal increase the rate to S$10–$15/tCO2e (US$8/tCO2e to US$11/tCO2e) by 2030.113 The carbon tax applies to all The Portugal carbon tax rate almost doubled facilities with annual GHG emissions over 25 ktCO2e from €6.85/tCO2e (US$8/tCO2e) to €12.74/tCO2e and is expected to raise revenue of nearly S$1 billion (US$14/tCO2e) on January 1, 2019.109 This is the result (US$760 million) in the first five years, which will help of the tightening EU ETS market, because the carbon support initiatives to address climate change such as tax rate is tied to the average EU ETS allowance price incentives for energy efficiency improvements in the in the preceding year. In anticipation of this increase in industrial sector.114 the tax burden for the general public, the government reduced the tax on gasoline by more than double the South Africa amount of the carbon tax increase.110 In addition, the carbon tax rate for coal-fired electricity generation South Africa became the first African nation to launch and co-generation facilities that also participate a carbon tax after Parliament passed the Carbon Tax in the EU ETS was increased from €0.685/tCO2e Bill on February 19, 2019.115 The launch date of the (US$0.8/tCO2e) to €1.25/tCO2e (US$1.4/tCO2e) to move carbon tax is June 1, 2019 and starts at R120/tCO2e away from coal. These facilities will gradually face the (US$8/tCO2e). This accomplishment was proceeded full tax rate in 2022.111 by a lengthy process that saw the implementation 107 Source: New Zealand Interim Climate Change Committee, Agriculture, accessed May 11, 2019, https://www.iccc.mfe.govt.nz/what-we-do/agriculture. 108 Source: Government of New Zealand, EU and New Zealand to strengthen cooperation on emissions trading systems, December 18, 2018, https://www.beehive. govt.nz/release/eu-and-new-zealand-strengthen-cooperation-emissions-trading-systems. 109 Source: Government of Portugal, Government Gazette: Finances, January 4, 2019, https://dre.pt/application/file/a/117620377. 110 Source: Government of Portugal, Special Taxes on Consumption, accessed April 11, 2019, https://dre.pt/web/guest/legislacao-consolidada/-/lc/34478675/ diploma?p_p_state=maximized&rp=diploma&eid=73363080. 111 Source: Government of Portugal, Section 4 of the Government Gazette: Vehicle Tax, December 31, 2018, http://app.parlamento.pt/webutils/docs/­ doc. pdf?path=6148523063446f­764c324679595842774f­6a63334e­7a637664326c­75644756346447397a­58324677636d­393259575276637938794d­ 4445344c3078664e­ 7a46664d6a­ 41784f4335775a­ 47593d&fich=L_71_2018.pdf&Inline=true. 112 Source: CI-ACA, Validation workshop of the opportunity study on the implementation of a carbon pricing instrument in Senegal, December 20, 2018. 113 Source: National Environment Agency Singapore, Carbon Tax, January 1, 2019, https://www.nea.gov.sg/our-services/climate-change-energy-efficiency/ climate-change/carbon-tax. 114 Source: Ibid. 115 Source: South African Government, Parliament Passes Bills, February 19, 2019, https://www.gov.za/speeches/national-assembly-passes-several-bills- %C2%A0-19-feb-2019-0000. 42 of the carbon tax delayed three times since its a precedent for future linking negotiations with implementation was first proposed in 2013 with an other jurisdictions, such as California-Québec, China, initial start date of January 2015. Multiple rounds Korea and New Zealand. Linking can bring certain of consultations and discussions were needed advantages to an ETS by creating a level-playing field to reach this stage due to its unpopularity with between companies in different countries, increasing businesses and heavy reliance of the South African market liquidity, and lowering abatement costs. economy on coal. Since then, wind and solar power have increased in competitiveness and utilities The Switzerland carbon tax increased on January 1, have undergone restructuring. In addition, several 2018 from CHF84/tCO2e to CHF96/tCO2e changes were made compared to the initial bill (US$87/tCO2e to US$99/tCO2e). In the context of following stakeholder input, including scaling down the revision of Swiss climate policy for 2021–2030, the growth of the carbon tax rate increase from the Swiss government put forward a proposal to initially 10 percent. The increase of the carbon tax rate increase the maximum possible carbon tax rate from until 2022 is now stated as the amount of consumer CHF120/tCO2e to CHF210/tCO2e (US$126/tCO2e to price inflation plus two percent annually. After 2022, US$220/tCO2e). However, the revision of the climate only inflationary adjustments are envisioned. The policy was rejected in the National Council of the Swiss South Africa carbon tax is one of its key instruments Parliament on December 12, 2018.117 The revision is to meet its NDC pledge. currently being debated by the Council of States, the other chamber of the Swiss Parliament.118, 119 Switzerland Ukraine On March 22, 2019, the Swiss Parliament approved the agreement to link the Swiss and EU ETS and Ukraine is in the process of adopting its framework adopted the necessary amendments to the Swiss law on monitoring, reporting and verification (MRV) CO2 Act to implement the agreement.116 After the in legislation. After the MRV system has been put in necessary amendments to the Swiss CO2 Ordinance place, Ukraine plans to develop separate legislation are also made, and Switzerland and the EU ratify the based on at least three years of data from the MRV agreement, the link could become operational as of system to transpose other relevant EU directives into January 1, 2020. its laws and establish an ETS.120 These developments are born out of Ukraine’s commitments under the The linking process took longer than originally Ukraine-EU Association Agreement of 2017, which anticipated when negotiations started in 2011. It aims to converge economic policy, legislation, and suffered various setbacks, including a major delay regulation across broad areas including trade and when the relationship between Switzerland and climate change in Ukraine with the EU. the EU was strained following a Swiss referendum on immigration that conflicted with an existing Ukraine has increased its carbon tax from agreement with the EU on free movement of persons. UAH0.41/tCO2e (US$0.02/tCO2e) to UAH10/tCO2e Another point of discussion was the inclusion of (US$0.4/tCO2e) as of January 1, 2019.121 Under the aviation, which Switzerland must add to its ETS as new provisions, entities with emissions exceeding part of the linking agreement. This link could form 500 tCO2 per annum are liable to pay tax. Companies 116 Government of Switzerland, Agreement between Switzerland and the EU on linking emissions trading systems. Approval and implementation (amendment of the CO2 Act), 6 May 2019, https://www.parlament.ch/de/ratsbetrieb/suche-curia-vista/geschaeft?AffairId=20170073 117 Government of Switzerland, Total revision of the CO2 Act after 2020, 6 May 2019,https://www.parlament.ch/de/ratsbetrieb/suche-curia-vista/ geschaeft?AffairId=20170071 118 Source: Swiss Parliament, Second Chance for the Total Revision of the CO2 Law, January 11, 2019, https://www.parlament.ch/press-releases/Pages/2019/mm- urek-s-2019-01-11.aspx?lang=1031. 119 Source: Swiss Federal office for the environment, CO2 Levy, September 28, 2018, https://www.bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/ climate-policy/co2-levy.html. 120 Source: Supreme Council of Ukraine, Draft Law on the Basis of Monitoring, Reporting and Verification of Greenhouse Gas Emissions, January 1, 2018, http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=64881. 121 Source: Legislation of Ukraine, On Amendments to the Tax Code of Ukraine and Some Other Legislative Acts of Ukraine on Improving the Administration and Revision of the Rates of Certain Taxes, November 23, 2018, https://zakon.rada.gov.ua/laws/show/2628-viii. 2 / Regional, national, and subnational carbon pricing initiatives 43 with emissions below 500 tCO2 per annum are tax Dividend Trust Fund for distribution to US citizens. exempt, and 500 tCO2 are subtracted from the total The Healthy Climate and Family Security Act of 2019, amount of taxed emissions from 2019.122 introduced on March 28, 2019, proposes a cap-and- trade program for fossil fuel producers, distributors United Kingdom and importers based on the carbon content of the fuels they sell and distribute carbon pricing revenues Currently, the UK participates in the EU ETS and to US citizens through a fund and dividend pay- the carbon price floor applies to the power sector. out.125 Both bills include improvements to their 2018 In October 2018, the UK government indicated in version,126,  127 and are currently being discussed in its 2018 Budget that in a “no deal” scenario—in committees. Several measures that directly apply which no mutually satisfactory agreement can be or implicitly raise the price on carbon were also reached between the EU and the UK, and the UK on the ballot during the US Midterm elections on must subsequently leave the EU—it will apply a November 6, 2018 but were all defeated. Notably, temporary carbon tax to all UK stationary installations Washington state’s Initiative No. 1631—also known currently participating in the EU ETS, except for the as the Washington Carbon Emissions Fee and aviation sector. During the initial tax period, a rate of Revenue Allocation Initiative—proposed levying a fee £16/tCO2e (US$21/tCO2e) would be applied to each of US$15/tCO2e on GHG emissions generated within tCO2e emitted over an installation’s emissions the state as of 2020.128 Revenues generated from the allowance, which would be based on the installation’s levy were intended to support various energy and free allocation under the current EU ETS. The carbon environmental projects. While carbon pricing-related tax would be introduced to help meet the UK’s legally measures were defeated, it is interesting to note binding carbon reduction commitments under the that in many parts of the country, such as California, Climate Change Act. The government continues to Colorado, Nevada, New Mexico, Oregon, and plan for all scenarios as it prepares for Brexit and is Washington, voters supported other forms of climate developing options for long term carbon pricing. The action. For example, in Nevada, voters expressed a UK government’s preferred option is to establish a UK preference for having electricity utilities purchase a ETS and link it to the EU ETS. However, the UK is also growing share of electricity from renewable energy considering fallback options such as a standalone UK sources.129 ETS, remaining in the EU ETS and a long-term carbon tax.123 Overall, at the US subnational level, states, cities and companies continue to enhance cooperation United States on carbon pricing. For example, the Carbon Cost Coalition—an initiative bringing state legislators At the federal level, lawmakers presented separate together to take action on climate and reduce bills for an ETS and a carbon tax with both bills carbon emissions through putting a price on focusing on returning carbon pricing revenues to carbon—has grown to include representation from citizens. The Energy Innovation and Carbon Dividend 12 states.130 Similarly, the Transportation and Climate Act of 2019,124 introduced on January 24, 2019, Initiative (TCI) issued a statement in December 2018 proposes a carbon tax on the GHG emissions of reflecting plans to develop a carbon pricing initiative all fossil fuels with revenues deposited in a Carbon in the transportation sector for nine US states and 122 Source: Prime Minister of Ukraine, On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on Improving the Administration and Revision of Rates for Certain Taxes and Duties, n.d., http://w1.c1.rada.gov.ua/pls/zweb2/webproc34?id=&pf3511=64888&pf35401=467992. 123 Source: Government of United Kingdom, Meeting Climate Change Requirements If There’s No Brexit Deal, February 28, 2019, https://www.gov.uk/government/ publications/meeting-climate-change-requirements-if-theres-no-brexit-deal/meeting-climate-change-requirements-if-theres-no-brexit-deal. 124 Source: United States Congress, H.R.763 - Energy Innovation and Carbon Dividend Act of 2019, January 24, 2019, https://www.congress.gov/bill/116th- congress/house-bill/763. 125 Source: United States Congress, S.940 - Healthy Climate and Family Security Act of 2019, March 28, 2019, https://www.congress.gov/bill/116th-congress/ senate-bill/940. 126 Source: United States Congress, S.3791 - Energy Innovation and Carbon Dividend Act of 2018, December 19, 2018, https://www.congress.gov/bill/115th- congress/senate-bill/3791. 127 Source: United States Congress, S.2352 - Healthy Climate and Family Security Act of 2018, January 29, 2018, https://www.congress.gov/bill/115th-congress/ senate-bill/2352. 128 Source: Washington Secretary of State, Initiative Measure No. 1631, March 13, 2018, https://www.sos.wa.gov/_assets/elections/initiatives/finaltext_1482.pdf. 129 Source: BallotPedia, Nevada Question 6, Renewable Energy Standards Initiative (2018), accessed April 12, 2019, https://ballotpedia.org/Nevada_Question_6,_ Renewable_Energy_Standards_Initiative_(2018). 130 Connecticut, Hawaii, Maine, Maryland, Massachusetts, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont, and Washington. 44 Washington DC.131 Specific elements of the TCI design the carbon pricing initiative and transpose it to state process include determining the cap level, establishing laws.132 The existing RGGI program also continues to MRV guidelines, identifying covered entities and evolve, with the states on track to adopt post-2020 fuels, developing cost containment mechanisms and cap-and-trade regulations in 2019,133 and the potential compliance flexibility, and specifying revenue usage. addition of two new states in 2020.134 The participating TCI jurisdictions aim to complete the policy development process in the course of 2019. Various US states also continue to develop their own The implementation of the initiative would be similar carbon pricing initiative or strengthen their existing to the Regional Greenhouse Gas Initiative (RGGI) one. Table 2 provides an overview of key carbon where member states jointly commit to implement pricing developments in individual US states. Table 2 / Key carbon pricing developments in individual US states135 Jurisdiction Type and status Key developments California ETS implemented −− In December 2018, the California Air Resources Board (CARB) approved a set of reforms for the post-2020 period. Key reforms include an addition of a price ceiling, the two allowance price containment reserve tiers below the price ceiling, no sustained free allocation, and reduced use of offsets. These reforms came into force in April 2019.136 These changes were the result of legislative direction for AB 398 which clarified the role of the program in achieving the state’s 2030 GHG emissions reductions goals. −− The reforms were adopted following a 45-day pubic consultation period from September to October 2018, which included the publication of an initial statement of reason, environmental analysis and impact assessment of the reforms. CARB also held four public workshop in 2017 and 2018 that have shaped the reforms.137 Massachusetts ETS implemented −− The Massachusetts ETS started operation in 2018 and covers the power sector. (own ETS and It complements RGGI to help ensure that Massachusetts achieves its mandatory participation in mitigation targets of achieving 25% reduction of emissions in the state as compared RGGI) to 1990 levels and 80% reduction of emissions by 2050 as compared to 1990 levels. −− In 2019, the auctioning of allowances has been introduced. The share of auctioned allowances is set to increase annually with the rest given away for free. 25% of the total allowances are auctioned in 2019, 50% in 2020, and 100% from 2021 onwards. New Jersey ETS under −− On January 29, 2018, New Jersey’s Governor signed an Executive Order to take all consideration (to necessary regulatory and administrative measures to ensure New Jersey’s timely rejoin RGGI) return to full participation in RGGI after it left in 2011.138 −− After working with the other RGGI states to determine how best to re-engage in the program, rules were made consistent with the 2017 RGGI Model Rule on December 17, 2018.139 New Jersey aims to have the legislation in place by May 2019 and to participate in the first RGGI auction of 2020. 131 Connecticut, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Vermont, and Virginia. 132 Source: TCI, Transportation & Climate Initiative Statement, December 18, 2018, https://www.georgetownclimate.org/files/Final_TCI-statement_20181218_ formatted.pdf. 133 Source: RGGI, State Statutes & Regulations, accessed March 19, 2019, https://www.rggi.org/program-overview-and-design/state-regulations. 134 Source: State of New Jersey, Regional Greenhouse Gas Initiative (RGGI), accessed May 4, 2019, https://www.state.nj.us/dep/aqes/rggi.html; RGGI, RGGI States Applaud Key Step for Virginia Emissions Trading Regulation, April 19, 2019. 135 For further details on each carbon pricing initiative, please refer to: World Bank, Carbon Pricing Dashboard, accessed March 14, 2019, https:// carbonpricingdashboard.worldbank.org/. 136 Source: California Air Resources Board, Proposed Amendments to the California Cap on Greenhouse Gas Emissions and Market- Based Compliance Mechanisms Regulation, February 14, 2019, https://ww2.arb.ca.gov/rulemaking/2018/california-cap-greenhouse-gas-emissions-and-market-based-compliance- mechanisms. 137 Source: Government of California, Proposed Amendments to the California Cap on Greenhouse Gas Emissions and Market- Based Compliance Mechanisms Regulation, March 29, 2019, https://ww2.arb.ca.gov/rulemaking/2018/california-cap-greenhouse-gas-emissions-and-market-based-compliance-mechanisms. 138 Source: Government of New Jersey, Executive Order NO. 7, January 29, 2018, https://nj.gov/infobank/eo/056murphy/pdf/EO-7.pdf. 139 Source: New Jersey Department of Environmental Protection, Murphy Administration Proposes Rules For State’s Re-Entry Into Regional Greenhouse Gas Initiative, December 17, 2018, https://nj.gov/governor/news/news/562018/approved/20181217b.shtml. 2 / Regional, national, and subnational carbon pricing initiatives 45 Jurisdiction Type and status Key developments New Mexico Carbon pricing −− On January 29, 2019, New Mexico instantiated an executive order to provide strategic being explored direction for 2030 emission reduction targets by exploring a wide range of measures to reduce the state’s GHG emissions. Measures that will be explored include a comprehensive market-based program that sets emission limits across New Mexico.140 Oregon ETS under −− On January 31, 2019, the Joint Committee on Carbon Reduction introduced House consideration Bill 2020, which proposes the establishment of a statewide cap-and-trade program (Oregon Climate Action Program) in line with the agenda of the Oregon government.141 −− The program would start in 2021, covering about 80% of the GHG emissions in Oregon. The cap would be in line with a proposed target of a 45% reduction in GHG emissions below 1990 levels by 2035 and at least 80% reduction by 2050. The program's design is closely modeled on the California and Quebec ETSs. The possibility of linking with other market-based compliance mechanisms in other jurisdictions is also mentioned in the proposed legislation. −− On March 25, 2019, the Joint Committee on Carbon Reduction proposed amendments to the proposal on the distribution of allowances to energy-intensive and trade- exposed sectors and the use of auction revenues following stakeholder fears for the impact on the cost of living and jobs.142 The committee continues to refine the proposal before the 2019 legislative session ends on June 30, 2019. Virginia ETS under −− Virginia is in the process of establishing an ETS and linking it to the RGGI program. consideration In September 2018, the DEQ released a revised draft regulation following comments from RGGI states to ensure consistency with the RGGI 2017 Model Rule and harmonize key design elements.143 −− Virginia is holding a public consultation early 2019 on the revised draft regulations.144 If there are no further delays, the Virginia ETS could be operational and linked to RGGI by 2020. Washington ETS implemented −− The state suspended compliance requirements under the Clean Air Rule (CAR) after State (compliance a court ruling on December 15, 2017 found that the Department of Ecology did not suspended) have the authority to cover suppliers of natural gas and petroleum products under its ETS as they are not direct emitters of GHGs. −− The Department of Ecology filed an appeal against the court ruling with the Washington State Supreme Court on May 14, 2018.145 The first hearing took place in March 2019, where both parties presented their arguments. The Supreme Court did not indicate when they will issue a ruling, so the compliance requirements under CAR remain suspended for the time being. Vietnam roadmap for GHG emission reduction is planned for approval in 2019, which references the use of carbon Vietnam is analyzing options for carbon pricing credits and a carbon policy initiative.146 approaches applicable to the county and developing pilot crediting programs for the steel and waste Selected changes in regional, national and subnational sectors, which could start after 2020. A decree on a carbon pricing initiatives are summarized in Box 4. 140 Source: Governor of New Mexico, Gov. Lujan Grisham Signs Executive Order Committing New Mexico to Essential Climate Change Action, January 29, 2019, https://www.governor.state.nm.us/2019/01/29/gov-lujan-grisham-signs-executive-order-committing-new-mexico-to-essential-climate-change-action/. 141 Source: Oregon State Legislature, Bill for Greenhouse Gas Emissions, January 31, 2019, https://olis.leg.state.or.us/liz/2019R1/Downloads/ CommitteeMeetingDocument/155934. 142 Source: Joint Committee on Carbon Reduction, Proposed Amendments to House Bill 2020, March 25, 2019, https://olis.leg.state.or.us/liz/2019R1/Downloads/ ProposedAmendment/14526. 143 Source: RGGI, RGGI States Submit Comments on Proposed Virginia Regulation for Emissions Trading, April 9, 2018, https://www.rggi.org/sites/default/files/ Uploads/Press-Releases/2018_04_09_Virginia_Comments_Release.pdf. 144 Source: Virginia Department of Environmental Quality, Greenhouse Gases, accessed March 19, 2019, https://www.deq.virginia.gov/Programs/Air/ GreenhouseGasPlan.aspx. 145 Source: Department of Ecology State of Washington, Ecology Statement on Appeal Filed with Washington State Supreme Court, May 14, 2018, https://ecology. wa.gov/Air-Climate/Climate-change/Clean-Air-Rule. 146 Source: PMR, Project Implementation Status Report (ISR), April 3, 2018, https://www.thepmr.org/system/files/documents/Vietnam_PMR%20Project%20 Implementation%20Status%20Report_April%202018.pdf. 46 Box 4 / Summary of selected changes in regional, national and subnational carbon pricing initiatives Initiatives implemented in 2018: Argentina (carbon tax) and Massachusetts (ETS) Initiatives implemented in 2019: Canada (federal backstop—fuel charge and OBPS), Nova Scotia (ETS), Newfoundland and Labrador (ETS and carbon tax), Prince Edward Island (carbon tax), Saskatchewan (ETS), Singapore (carbon tax), and South Africa (carbon tax) New initiatives under consideration: New Brunswick (Canada), Ontario (Canada), and Senegal Initiatives under consideration that experienced new developments in the past year: Colombia, Mexico, Netherlands, Oregon (US), Ukraine, Virginia (US), and Vietnam Price rate changes (carbon tax only): 2018/2019: The Iceland carbon tax rate increased with 10 percent to approximately ISK3850/tCO2 (US$31/tCO2e). From January 1, 2018, the Finland carbon tax rate for heating fuels decreased from €62/tCO2e (US$77/tCO2e) to €53/tCO2e (US$60/tCO2e) to compensate for a new GHG calculation method. The Portugal carbon tax rate almost doubled from €6.85/tCO2e (US$8/tCO2e) to €12.74/tCO2e (US$14/tCO2e). The Switzerland carbon tax increased on January 1, 2018 from CHF84/tCO2e (US$85/tCO2e) to CHF96/tCO2e (US$97/tCO2e). The Ukraine carbon tax increased to HR0.41/tCO2e (US$0.02/tCO2e) to HR10/tCO2e (US$0.4/tCO2e). Price/market stabilization mechanisms (ETS only): 2018/2019: In the EU ETS, the MSR entered into force on January 1, 2019. Future developments: Dutch government introduced plans for a carbon price floor for electricity generators of €12.3/tCO2e (US$14/tCO2e) in 2020, rising to €31.9/tCO2e (US$36/tCO2e) in 2030. New Zealand has proposed plans to introduce a cost containment reserve in place of the current price ceiling. The California cap-and-trade program reforms for post-2020 include an allowance price containment reserve and a price ceiling that provides the upper bound of the price containment mechanism and increases each year with an estimated 2030 value of US$94 (real 2018). Offsets: Future developments: A series of subsidiary regulations supporting proposals has been formulated in preparation for the Taiwan ETS, including the 2018 Regulations Governing GHG Offset Program Management to enable companies to acquire carbon offsets credits. California is reducing the maximum amount of offset usage for compliance under its cap-and-trade program from 8% to 4% from 2021 through 2025, with an increase to 6% from 2026 through 2030. Linking and/or cooperation: 2018/2019: New Jersey intends to join RGGI in 2019. Nine states and Washington DC are working together to develop a carbon pricing initiative under the Transportation and Climate Initiative Future developments: The EU and Switzerland ETS link could become operational as of January 1, 2020. Oregon published draft ETS legislation in January 2019 with intentions of linking ETS to other North American ETSs in the future. The Virginia ETS could be operational and linked to RGGI by 2020. 2 / Regional, national, and subnational carbon pricing initiatives 47 Europe has continued to strengthen and adjust 2.3 its carbon pricing initiatives, particularly the EU Recent developments, ETS. Ukraine is making steps to set up its own ETS. Governments are also looking to reinforce their emerging and future initiatives, with Iceland and Ukraine increasing their trends carbon tax rates and the Netherlands looking to introduce a new carbon tax to incentivize stronger emission reductions. Some governments are also The detailed analysis of the recent developments facing setbacks trying to increase their carbon in carbon pricing initiatives highlights some key tax rates, with the Swiss parliament rejecting an trends on how carbon pricing has evolved in the increase in the maximum carbon tax rate and France past years, which are summarized below. facing societal pressure to alter its rising carbon tax trajectory. New carbon pricing initiatives are emerging mostly at the subnational level and in developed In Asia, the Singapore carbon tax entered into countries. Several developing countries are force on January 1, 2019. China is still working to implementing readiness activities, and assistance operationalize its national ETS, while its subnational provided by international organizations and national ETS pilots are gradually transitioning their systems development agencies remains crucial to build to align with the national one. Existing initiatives in the needed technical assistance147, 148 to further Asia continue to develop, including the Republic of advance carbon pricing in developing countries. Korea ETS, which entered its second phase, and the The North American region has experienced many Kazakhstan ETS, which is relaunching after a two- developments at the subnational level, with 9 of year suspension. the 11 newly implemented carbon pricing initiatives between 2018–2019 so far originating in this region Australia and New Zealand have recently gone —mostly in the Canadian provinces. These initiatives through a review of their initiatives and are currently were driven by Canada’s Pan-Canadian Approach to working on implementing the required changes. The Pricing Carbon Pollution which include the initiation changes to the baseline levels for facilities under of a federal backstop system consisting of an ETS the Australia ERF Safeguard Mechanism came into and a fuel charge similar to a carbon tax that would effect in March 2019. New Zealand is in the process be implemented in absence of sufficiently ambitious of reforming its ETS with new price stabilization carbon pricing action at the subnational level. In the measures and market governance structures being US, carbon pricing initiatives continue to grow at the in place as of December 2018, and further reform subnational level, with a new ETS being implemented decisions to be made by mid-2019 regarding free in Massachusetts and New Mexico starting to explore allocation, compliance and forestry accounting. carbon pricing. 147 A number of jurisdictions have benefited from external support in developing carbon pricing instruments under the Partnership for Market Readiness (PMR). The PMR, established in 2011, is a partnership of 42 jurisdictions that are at the forefront of developing carbon markets. To date, the PMR has supported 23 developing countries to prepare for and implement carbon pricing instruments. For example, the PMR supported Chile to implement its carbon tax, and supported China to develop its provincial and national emissions trading schemes. More information on the PMR is available at: www.thepmr.org 148 The Carbon Pricing Leadership Coalition (CPLC) represents a coalition of 34 national and subnational government partners, 160+ private sector partners from a range of regions and sectors, and 80+ strategic partners representing NGOs, business organizations, and universities that work together to promote efforts to price carbon by sharing experiences and to expanding the evidence base on how to effectively plan design and implement carbon pricing systems and policies. 48 In other regions, such Latin America, Argentina to join RGGI. Oregon continues to design its own launched its carbon tax, and Mexico continues to ETS with the possibility of linking to other carbon work on the start of its pilot ETS. Africa is seeing its pricing initiatives and has modelled its ETS after the first carbon pricing initiative enter into force in 2019. California and Québec cap-and-trade programs. In The South Africa carbon tax started on June 1, 2019. 2019, Switzerland and the EU made strides towards Senegal and Côte d’Ivoire are exploring carbon pricing ratifying the Linking Agreement, which could see as part of the policy options to achieve their NDCs. their markets linked from January 1, 2020. This cooperation also serves to exchange knowledge Many jurisdictions are deepening their carbon and strengthen capacity. The EU and California pricing ambition to better align with their agreed at the Global Climate Action Summit held in climate goals, and many ETSs are being reformed. September 2018 on more frequent knowledge Governments are increasingly recognizing carbon exchanges. The EU also reaffirmed its continued pricing as a key policy instrument to deliver on bilateral cooperation with China in developing climate mitigation targets and are looking to raise the China national ETS. At the 24th Conference carbon pricing ambition—either through price of the Parties (COP 24), the New Zealand and the increases, removing exemptions or increased EU announced plans to strengthen their bilateral stringency. For example, Iceland increased its carbon cooperation on emissions trading. To support tax rate by 10 percent in 2019 to bolster its effort jurisdictions in their efforts to explore cooperation to reach its NDC and Portugal is gradually reducing and linking of their carbon pricing systems, the its carbon tax exemptions to transition away from International Carbon Action Partnership (ICAP) coal. The European Union and New Zealand have published a new guide to linking ETSs.149 also significantly reformed and strengthened their respective ETSs to align with their NDC. In the Cooperation is taking place also via the newly US, more states have opted to join the RGGI and established Coalition of Finance Ministers for California has planned for significant reforms in Climate Action, which includes more than 20 Finance their ETS. Ministries that signed the Helsinki Principles, which promote national climate action, especially through Increased cooperation continues across several fiscal policy and the use of public finance.150 Another carbon pricing initiatives around the world. example of cooperation is the Carbon Pricing in the Nine US states and Washington DC are working Americas (CPA) declaration, launched at the One together under the TCI to develop a carbon pricing Planet Summit held in December 2017, that calls initiative for the transportation sector. RGGI is also for the establishment of a regional cooperation set to grow, with New Jersey and Virginia looking platform exclusively on carbon pricing, aimed at 149 Source: Santikarn, M., L. Li, S. La Hoz Theuer, & C. Haug. A Guide to Linking Emissions Trading Systems. ICAP: Berlin, 2018. 150 Peer-exchange to share experience and expertise on climate mitigation and adaptation as well work towards measures that result in effective carbon pricing are two of the principles endorsed by this Coalition. Source: https://www.cape4financeministry.org/coalition_of_finance_ministers. Countries part of this initiative are: Austria, Chile, Colombia, Costa Rica, Côte D’Ivoire, Denmark, Dominican Republic, Ecuador, Finland, Fiji, France, Germany, Guatemala, Iceland, Ireland, Kenya, Luxembourg, Marshall Islands, Mexico, Netherlands, Nigeria, Norway, Paraguay, Philippines, Poland, Spain, Sweden, Uganda, United Kingdom. 2 / Regional, national, and subnational carbon pricing initiatives 49 facilitating knowledge sharing, brokering peer-to-peer tax and many other instances when social protests, exchanges and overall strengthening regional and such as the Yellow Vests movement, or political shifts international collaboration.151 Under the leadership of have brought implemented and planned carbon the CPA Co-chairs, Mexico and Canada, this initiative pricing initiatives to an end. Building and maintaining made progress in 2018 by developing and adopting broad, multi-partisan, public support for carbon pricing a platform and delivering a series of governance and helps to make it less vulnerable to political changes. advocacy events.152 British Columbia, for example, manage to maintain and even increase public support for its carbon tax Developments in the past year also serve as a over time. The share of its population opposing carbon reminder of the need to ensure public support for pricing decreased from about 60 percent to less than the adoption and the long-term survival of carbon 45 percent between 2009 and 2015.153 Learning from pricing policies, as briefly discussed in Box 5. Carbon these experiences and sharing good practices is key pricing is vulnerable to social unrest and public ballots, to support jurisdictions in adopting new or reforming as shown with the rejection of the Washington carbon existing instruments. Box 5 / Catalyzing public support for carbon pricing For many years, the State and Trends of Carbon Pricing reports have described the developments of carbon pricing initiatives across the globe and clearly shown that initiatives can follow very different designs, also depending on circumstances prevailing in each economy. Accounting for local circumstances is crucial for catalyzing public support of carbon pricing, and there might not be “one-size-fits-all“ approach on how to gain and maintain public acceptability. There is, however, a growing strand of research that analyzes public support for carbon pricing and can offer insights on how to build and maintain this support, for instance, via the strategic use of revenues; a gradual introduction of carbon pricing, through piloting or phasing in; and carefully crafted communication strategies. Reviewing this research would go beyond the scope of the present report, but interested readers are referred to these sources.154 151 Countries part of this initiative are: Canada, Chile, Colombia, Costa Rica, Mexico, the Governors of California and Washington, and the Premiers of Alberta, British Columbia, Nova Scotia, Ontario and Québec. 152 Source: CPLC, Declaration on Carbon Pricing in the Americas: Building Momentum Among Continents, September 25, 2018, https://www.carbon­ pricing­ leadership.org/blogs/2018/9/24/declaration-on-carbon-pricing-in-the-americas-building-momentum-among-continents. 153 Source: Murray, B. and Rivers, N., 2015. British Columbia’s revenue-neutral carbon tax: A review of the latest “grand experiment” in environmental policy. Energy Policy, 86, pp. 674-683. 154 Relevant research includes: Baranzini, Andrea, et al., 2017. Carbon Pricing in Climate Policy: Seven Reasons, Complementary Instruments, and Political Economy Considerations. Wiley Interdisciplinary Reviews: Climate Change, 8(4), p. 462; Carattini, Stefano, Maria Carvalho, and Sam Fankhauser., 2018. Overcoming Public Resistance to Carbon Taxes. Wiley Interdisciplinary Reviews: Climate Change, 9(5), p. 531; Dominioni Goran and Heine Dirk, Behavioural Economics and Public Support for Carbon Pricing: A Revenue Recycling Scheme to Address the Political Economy of Carbon Taxation, European Journal of Risk Regulation, 2019.; Klenert, David, et al., 2018. Making Carbon Pricing Work for Citizens. Nature Climate Change, 8(8), pp.669-77; Pigato Miria, A., Editor. 2019. Fiscal Policies for Development and Climate Action. International Development in Focus. Washington, DC: World Bank; Barry Rabe, Can We Price Carbon?, Cambridge: MIT Press, 2018. 50 Figure 13 / Sectoral coverage and GHG emissions covered by carbon pricing initiatives implemented or scheduled for implementation, with sectoral coverage and GHG emissions covered WASHINGTON MASSACHUSETTS EU** KAZAKHSTAN 2% 20% 18% 41% 39% 33% 50% 70% 67% 11% 71% 65% 41% SWITZER- REPUBLIC OF CANADA**** RGGI LAND 7% UKRAINE KOREA JAPAN*** 4% 33% NEW MEXICO CHILE SOUTH AFRICA SINGAPORE ZEALAND 20% 24% 39% 46% 50% 51% 85% 80% 80% CALIFORNIA COLOMBIA ARGENTINA CHINA* AUSTRALIA ETS implemented or scheduled for implementation Industry Buildings All fossil fuels (tax only) Carbon tax implemented or scheduled for implementation Power Waste Solid fossil fuels ETS and carbon tax implemented or scheduled Transport Forestry Liquid fossil fuels 40% Estimated coverage Aviation Agriculture Shipping Note: The size of the circles reflects the volume of GHG emissions in each jurisdiction. Symbols show the sectors and/or fuels covered under the r ­ espective carbon pricing initiatives. The largest circle (China) is equivalent to 12.4 GtCO2e and the smallest circle (Switzerland) to 0.05 GtCO2e. The carbon pricing initiatives have been classified in ETSs and carbon taxes according to how they operate technically. ETS does not only refer to cap-and-trade systems, but also baseline-and-credit systems such as British Columbia and baseline-and-offset systems such as in Australia. Carbon pricing has evolved over the years and they do not necessarily follow the two categories in a strict sense. The authors recognize that other classifications are possible. * The coverage includes the China national ETS and eight ETS pilots. The coverage represents early unofficial estimates based on the announcement of China’s National Development and Reform Commission on the launch of the national ETS of December 2017 and takes into account the GHG emissions that will be covered under the national ETS and are already covered under the ETS pilots. The sector symbol refers to the covered sectors in the national ETS or (one of the) ETS pilots. The national ETS will initially cover the power sector only. The covered sectors vary per ETS pilot. ** Also includes Norway, Iceland and Liechtenstein. Carbon tax emissions are the emissions covered under various national carbon taxes; the scope varies per tax. *** ETS emissions are the emissions covered under the Tokyo CaT and Saitama ETS. **** The coverage includes both components of the Canada federal backstop system and the subnational carbon pricing initiatives. 2 / Regional, national, and subnational carbon pricing initiatives 51 Box 6 / Carbon pricing in numbers 3 International carbon pricing initiatives 53 3 International carbon pricing initiatives Implementation of the Paris adaptation they provide for developing countries. Agreement and NDCs Simultaneously, developing countries should report on the support they have received and still need. Two years after the Paris Agreement entered into Countries are further encouraged to report on the force,155 an important milestone was reached at impacts of climate change and adaptation actions COP 24 in Katowice, Poland. Government leaders they have taken. The first transparency report is due agreed to the Katowice Climate Package, which sets by December 31, 2024.159 out the implementation guidelines for the Paris Agreement.156 The package includes operational As of April 1, 2019, 195 Parties have signed the guidance on the information for governments Paris Agreement and 185, representing 87 percent to provide in their NDCs and rules for how the of global GHG emissions, have deposited their Transparency Framework should function. The instruments of ratification, as shown in Figure 14. framework aims to build trust and confidence that all countries are contributing their fair share to The Paris Agreement requires all ratifying Parties the global effort against climate change.157 Under to communicate an NDC.160 One country, the the framework, countries will submit biennial Marshall Islands, has submitted a second NDC to transparency reports to the UNFCCC. These reports enhance its level of ambition. 96 Parties mention must contain the national inventory of GHG emissions carbon pricing in their NDC, indicating that they are and information for tracking the progress countries planning or considering the use of climate markets have made on implementing and achieving their and/or domestic carbon pricing to meet their NDC NDC.158 Developed countries must also report the commitments. These 96 Parties represent 55 percent financial support and technology transfer and of global GHG emissions; compared to a year ago,161 capacity building for climate change mitigation and this is an increase of eight Parties. The Parties 155 The Paris Agreement entered into force on November 4, 2016. 156 Source: UNFCCC, The Katowice Climate Package: Making The Paris Agreement Work For All, accessed March 5, 2019, https://unfccc.int/process-and- meetings/the-paris-agreement/katowice-climate-package. 157 Source: Ibid. 158 The national inventory can be submitted as part of the biennial transparency report or as a stand-alone report. Least Developed Countries and Small Island Developing States have less stringent reporting requirements. 159 Both Syria and Nicaragua have deposited their instruments of ratification but have not yet formally signed the Paris Agreement. However, both these countries have submitted their first NDCs to the NDC registry. Source: UNFCCC, NCD Registry, accessed March 5, 2019, https://www4.unfccc.int/sites/ NDCStaging/Pages/All.aspx. 160 For most Parties, the first NDC is their originally submitted INDC. Only 11 Parties have an NDC that differs from their INDC, and 6 have submitted an entirely new NDC. In most cases, modifications to NDCs were minor, although some countries increased their ambitions. Furthermore, four Parties that did not submit an INDC submitted an NDC following ratification of the Paris Agreement, and six parties have submitted their instruments for ratification but have not yet submitted an NDC. Source: UNFCCC, NCD Registry, accessed March 5, 2019, https://www4.unfccc.int/sites/NDCStaging/Pages/All.aspx. 161 Comparing April 1, 2019 with April 1, 2018. Note that in the 2018 edition of the State and Trends of Carbon Pricing report, coverage of the NDCs mentioning carbon pricing was 57% of global emissions. Coverage increased with the additional NDCs, but an updated dataset of the underlying EDGAR database was used for the global GHG emissions in this year’s report that includes emissions from biomass, resulting in a lower overall coverage in global GHG emissions. 54 Figure 14 / Status of NDC submissions Parties to the UNFCCC 197 Parties that have signed 195 the Paris Agreement Parties that have ratified 185 the Paris Agreement 1 Parties that have submitted an NDC 180 181 Parties that mention 84 5 7 96 carbon pricing in their NDC 0 50 100 150 200 Parties that submitted Parties that mention Parties that mention Parties that mention a second NDC international carbon domestic carbon pricing international and domestic pricing in their NDC in their NDC carbon pricing in their NDC Note: As the modalities and procedures for the NDC registry are not yet in place, there is currently no basis to enforce a timeline on the submission of the NDC even though the Parties are technically in breach of the provisions of the Agreement. The EU is included as a separate Party in the tally above. mentioning carbon pricing in their NDC include three −− Seven Parties responsible for four percent Parties that did not mention carbon pricing in their of global GHG emissions mention that both intended NDCs (INDCs): Uruguay, Argentina and international and domestic carbon pricing Mali.162,  163 initiatives are under consideration.166 −− 84 Parties that account for about 27 percent of The way in which carbon pricing is included across global GHG emissions state intentions to use the submitted NDCs differs:164 international carbon pricing initiatives. −− Five Parties that represent almost a quarter of global GHG emissions mention the intention to For a detailed overview of the NDCs please refer to use a domestic carbon pricing initiative.165 Annex II. 162 Uruguay states that although it does not rule out taking part in international GHG emissions trading markets, priority is given to the fulfillment of the commitments in its NDC. 163 Developing countries have actively been seeking focused and prioritized support from the international community on carbon pricing-related issues in order to implement their NDCs. One way in which countries have been requesting support is through the NDC Partnership, a continuously growing coalition of 124 countries and institutions working to mobilize support and achieve ambitious climate goals while enhancing sustainable development. From its members, 7 countries have requested support on market mechanisms, across the world focusing on feasibility studies for emission trading schemes, payment for ecosystem services, participation in international carbon markets and on the forestry sector. 164 This analysis is based on the number of NDCs that make a reference to forms of domestic or international carbon pricing. However, the authors recognize that there are different interpretations possible for the text in NDCs and the mention of carbon pricing in a domestic context may not necessarily mean that a domestic carbon pricing initiative is formally under consideration. Also, not all Parties that already have a carbon pricing initiative implemented, scheduled or under consideration have reported this in their NDC. The number of Parties planning or considering the use of carbon pricing in their NDC is therefore not comparable with the jurisdictions with carbon pricing initiatives implemented, scheduled or under consideration. 165 China, Gabon, Iceland, Norway and South Africa. 166 Canada, Costa Rica, Egypt, Korea, Panama, St. Lucia and Trinidad & Tobago. 3 / International carbon pricing initiatives 55 International carbon pricing can be used to meet the NDC of either the host mechanisms under the Paris Agreement country or another country. The mechanism is intended to incentivize mitigation activities by both International cooperation and climate markets can public and private entities. play an important role in reducing mitigation costs, increasing ambition for mitigation actions, as well Demand for the mitigation outcomes (i.e., resulting as increasing resource mobilization by crowding in emission reductions) from international carbon public and private capital. The analysis in the 2016 pricing mechanisms have traditionally come from edition of the State and Trends of Carbon Pricing three major groups: compliance markets, voluntary suggests that an international carbon market could markets, and more indirectly, through RBCF. In the reduce the annual cost of limiting global warming context of the carbon pricing mechanisms under the to 2°C by the middle of the century, potentially Paris Agreement, one major source of demand from significantly, compared to countries acting alone.167 compliance markets will come from nations seeking This result indicates that for the same cost, an to use the outcomes, such as ITMOs and potential international carbon market would allow to achieve credits from the Article 6.4 mechanism, to help meet additional mitigation action compared to a state of their NDCs, summarized in Table 3. the world without it. Article 6 of the Paris Agreement provides for voluntary cooperation among countries Some NDCs mention the use of international market for the implementation of NDCs to allow for higher mechanisms, which could include credits from a new climate ambition, promote sustainable development, mechanism established by Article 6.4 of the Paris and promote environmental integrity: Agreement, while others refer to carbon markets, which could also include the use ITMOs mentioned in −− Article 6.2 covers cooperative approaches, Article 6.2. Among the 96 NDCs that reference the use where Parties could opt to meet their NDCs of international carbon pricing initiatives, currently, by using internationally transferred mitigation only eight—Canada, Japan, Liechtenstein, Monaco, outcomes (ITMOs). ITMOs aim to provide a basis New Zealand, Norway, South Korea and Switzerland for facilitating international recognition of cross- —mention that they intend to use international border applications of subnational, national, credits to meet their NDCs under the Paris Agreement, regional and international carbon pricing while several major emitters explicitly rule out the initiatives. use of international credits. However, a number of countries have adopted or are working on climate −− Article 6.4 establishes a mechanism for countries targets that go beyond their NDC, and some—such as to contribute to GHG emissions mitigation and Sweden168—indicated that international credits could sustainable development. The emission reductions be used to meet these more ambitious targets. 167 For further information, please refer to World Bank, Ecofys and Vivid Economics, State and Trends of Carbon Pricing 2016, October 2016. In principle, the cost savings could be as large as 50 percent with a fully global, friction-free carbon market. 168 Swedish Climate Policy Council, Climate Policy Framework, accessed April 29, 2019, https://www.klimatpolitiskaradet.se/det-klimatpolitiska-ramverket/. 56 Table 3 / Overview of countries seeking to use the outcomes such as ITMOs and potential credits from the Article 6.4 mechanism to help meet their NDCs Country NDC statement Canada Canada may use international mechanisms to achieve its target, subject to robust systems that deliver real and verified emissions reductions. Canada is also looking to reduce its emissions through the North American marketplace. Japan Japan aims at reducing 50-100 MtCO2e/year through the Joint Crediting Mechanism. Liechtenstein In putting forward its commitment, Liechtenstein assumes to achieve emission reductions abroad which may be accounted towards its reduction target in 2030. However, primary focus will be given on domestic emission reductions. Monaco Monaco plans to use international emission reductions, because domestic emission reductions are ‘insufficient’ to meet the end goal. New Zealand New Zealand’s NDC will remain provisional pending confirmation of access to carbon markets. New Zealand calls for unrestricted access to global carbon markets that enable trading and use of a wide variety of units that meet reasonable standards and guidelines to: −− ensure the environmental integrity of units/credits generated or purchased −− guard against double-claiming/double-counting, and −− ensure transparency in accounting. Norway Norway participates in the EU ETS and for non-ETS sectors, Norway assumes access to flexibility in implementation in line with what EU member states have. In this situation, there will be no use of international market credits towards the target. Norway plans to use international credits only if it cannot secure a collective agreement with the EU. Republic of Korea will partly use carbon credits from international market mechanisms to achieve its 2030 mitigation Korea target, in accordance with relevant rules and standards. Credit types are not defined in the NDC. Switzerland Switzerland will realize its NDC mainly domestically and will partly use carbon credits from international mechanisms. Switzerland will use carbon credits from international mechanisms that deliver real, permanent, additional and verified mitigation outcomes and meet high environmental standards. However, there is still a lack of clarity on key −− Single-year versus multiyear NDCs: One of the issues related to Article 6. Critical issues under fundamental issues is comparability across NDCs Article 6 remain under negotiation, including: that use multiyear budgets and those that use a single-year target. While the accounting system −− Metrics: Parties have different views on whether under the Kyoto Protocol was designed to ensure ITMOs should be denominated in CO2e metrics compliance with multiyear carbon budgets, most only or should allow for non-CO2e metric activities. NDCs are currently defined as single-year targets. While denomination of all ITMOs in a single metric It is not clear how countries with single and may simplify accounting, exploring the inclusion multiyear targets would account for their NDCs, of different metrics may offer some flexibility to and whether a common basis for the use of ITMOs consider a wider set of cooperative approaches. would emerge. 3 / International carbon pricing initiatives 57 −− Corresponding adjustments: It is unclear At the international level, the International ITMO how countries would undertake corresponding Purchase Program of the KliK Foundation is working adjustments against the transfer of ITMOs, to establish procedures for the purchase of ITMOs when the adjustment would be made, and the from 2021. It targets public and private organizations application of a corresponding adjustment for and aims to purchase 54 MtCO2e in emission mitigation outcomes generated outside or beyond reduction certificates that comply with Article 6 to the issuing country’s NDC. offset emissions from the Swiss transport sector, as determined by the Swiss CO2 law.170 −− Inside/outside NDC: The eligibility of mitigation outcomes generated inside and outside the NDC The Pilot Activities of the Climate Cent Foundation for transfer under Articles 6.2 and 6.4 remains to (CCF), a Swiss foundation funded through a fuel levy be clarified. that aims to invest in mitigation projects abroad and transfer the emission reduction certificates to the −− Governance: The governance framework for Swiss government. CCF is financed via proceeds from a Article 6 is yet to be determined. The role and former fuel tax.171 The initiative aims to provide useful functions of the Supervisory Body, as well as the insights on transactional set-ups in government- different governance arrangements for Article 6.2 to-government negotiations, which it specifies in a and 6.4 are yet to be finalized. Mitigation Outcomes Purchase Agreement. In addition to above, there are issues related to The Joint Crediting Mechanism (JCM) is a bilateral application of share of proceeds for 6.2 activities mechanism initiated by the Government of Japan to and transition of existing CDM projects and support mitigation actions in developing countries. associated methodologies. A lack of regulatory Japan’s Ministry of Environment is exploring how the certainty makes it difficult for market players to JCM can help operationalize ITMOs under Article 6.2 initiate early action. Piloting new tools, approaches, and seek opportunities to build on the experience and and frameworks for Article 6 is critical to ensuring insights from the implementation of JCM rules and that Article 6 discussions are informed by practical accounting procedures. examples and experience. Research and piloting have already been initiated to build capacity, test, Multilateral Development Banks (MDBs) jointly and experiment new concepts without waiting for established a Working Group in October 2017 to help the finalization of all the detailed rules.169 Such pilots position Article 6 as a high strategic priority in climate give countries and stakeholders an opportunity negotiations and find opportunities to collaboratively to discuss and analyze various scenarios to assess pilot Article 6 transactions.172 how their climate targets can be optimally achieved. They can also enhance international cooperation to The Article 6 Support Facility was established develop solutions that address specific issues, such by the Asian Development Bank (ADB) to provide as double counting. Some of the piloting activities capacity building, technical and policy support for that are being conducted at the domestic and its developing member countries to develop and international level are described below. pilot Article 6 activities.173 This initiative illustrates how MDBs can function as an influential platform preparing countries for the Paris Agreement. 169 Research can be extremely valuable to support efforts to evaluate approaches, test methods, and facilitate transactions. Research analyzing alternative institutional designs can define the potential role and value of international carbon pricing, identifying opportunities, uncertainties, and risks, and facilitating design discussion. Among other things, new research is needed to explore the potential for international carbon pricing in futures beyond the NDCs. This research should include evaluation of specific potential contexts over time, in addition to assessing how carbon pricing might facilitate increasing ambition and the pursuit of international goals. 170 Source: Swiss Federal Office for the Environment, Total revision of the CO2 Act, accessed May 10, 2019, https://www.bafu.admin.ch/bafu/de/home/ themen/klima/recht/totalrevision-co2-gesetz.html. 171 Source: Climate Finance Innovators, Moving towards next generation carbon markets: observations from Article 6 pilots, March 2019. 172 Current members of the Working Group are ADB, AfDB, EBRD, EIB, IDB, IsDB, and WBG. Further information can be found here: http://www.worldbank.org/ en/topic/climatechange/brief/mdb-working-group-on-article-6-of-the-paris-agreement 173 Source: Asian Development Bank, Establishing a Support Facility for Article 6 of the Paris Agreement, accessed May 14, 2019, https://www.adb.org/ projects/50404-001/main#project-pds. 58 The European Bank for Reconstruction and transparently transfer mitigation outcomes Development (EBRD) is working to leverage between parties and provide robust accounting its Integrated Carbon Programs to test new and transparency, ensuring the environmental methodologies for operationalizing Article 6. integrity of assets. The World Bank Group (WBG) has also Clean Development Mechanism initiated several piloting activities to kickstart the and Joint Implementation operationalization of Article 6 through learning-by- doing. For instance: Similar to the lack of an agreement on the Article 6 guidelines, no decision was made on the −− The Climate Warehouse seeks to establish future of the Kyoto Mechanisms—the CDM (Clean common infrastructure for post-2020 markets Development Mechanism) and Joint Implementation that would function as a database of mitigation (JI)—under the Paris Agreement at the Katowice outcomes. The WBG is working to create an COP. The two mechanisms have issued around initial supply of mitigation outcomes from its 2.8 GtCO2e of mitigation outcome credits in the own portfolio of lending operations on a pilot form of Certified Emission Reductions (CERs) and basis, and developing risk mitigation products to Emission Reduction Units (ERUs) respectively, as facilitate early demand. This initiative is yet to be of December 31, 2018 174 and have a significant operational. number of existing projects which will run for many years after 2020. Currently, there is considerable −− The Carbon Initiative for Development (Ci- uncertainty over whether and how these projects will Dev) is piloting the use of new methodological continue to issue credits, and how they will interact frameworks, such as the Standardized Crediting with NDCs under the Paris Agreement. According Framework (SCF), to direct climate finance to client to the UNFCCC, the CDM is in principle able to issue countries in preparation for the post-2020 markets 4.6 billion CERs to the end of 2020.175 This potential under the Paris Agreement. Senegal and Rwanda to generate mitigation outcomes could mean that so far adopted the SCF for the Ci-Dev supported project developers and project host countries are programs and currently exploring to expand to keen to see some role for these projects in future other technologies and project types. mechanisms under the Paris Agreement. However, other countries and stakeholders are concerned that −− The Carbon Partnership Facility is currently such actions could oversupply the market under the piloting sectoral and policy based crediting Paris Agreement, and have voiced concerns over approaches under the Article 6 of the Paris the robustness of the CDM’s rules with respect to Agreement in client countries and developed the quality of the CERs issued. Discussions on how, methodologies, validation protocol and validation or whether to, carry forward the issued credits and guidance documents. approved methodologies drawn up under the CDM, and if limitations should be placed on their use for −− The Transformative Carbon Asset Facility meeting pledges under the Paris Agreement, were (TCAF) seeks to inform international negotiations inconclusive at COP 24 and the decisions were on Article 6 by testing various methods to postponed along with other Article 6 items to COP 25. 174 Issuance volume from Source: UNFCCC, Joint Implementation & Clean Development Mechanism, accessed April 12, 2019, http://ji.unfccc.int/index.html; http://cdm.unfccc.int/. 175 Source: UNFCCC, CDM Insights, Project activities, March 31, 2019, https://cdm.unfccc.int/Statistics/Public/CDMinsights/index.html. 3 / International carbon pricing initiatives 59 Figure 15 / Historic CDM and JI issuances and CER prices176 2,000 25 Volume (MtCO2e) Unit price (US$/CO2e) 1,800 1,600 20 1,400 1,200 15 1,000 800 10 600 400 5 200 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CER issuance Cumulative CER issuance Annual average secondary CER prices ERU issuance Cumulative ERU issuance Currently the CDM has just under 8,000 projects have continued the decreasing trend of the past registered. Despite its achievements in incentivizing years, dropping to 15 million in 2018 compared to mitigation activities, lack of demand for these 21 million in 2017.179 mitigation outcomes has meant that prices for CERs continue to remain very low. CERs are currently In efforts to increase demand for CERs, the traded at around US$0.3/tCO2e.177 Such low prices UNFCCC has promoted the use of CERs on the and future uncertainty has led to declining CDM voluntary market. Voluntary cancellations of CERs activities, as shown in Figure 15. 2018 saw issuances in 2018 stood at around 11.5 million, of which the of CERs continuing to decline with approximately majority were cancellations for the CERs to be used as 73 million CERs issued compared to 119 million CERs offsets in other carbon pricing mechanisms. Around in 2017. This makes 2018 the first time since 2007 that 3.5 million CERs from Korean projects were cancelled annual issuances have dropped below 100 million for use in the Korea ETS. New this year was that CERs.178 Furthermore, the trading volume of CERs roughly 3.5 million additional CERs were cancelled 176 Issuance volume from Source: UNFCCC, Joint Implementation & Clean Development Mechanism, accessed April 12, 2019, http://ji.unfccc.int/index.html; http://cdm.unfccc.int/. CER prices are annual unweighted average prices from Intercontinental Exchange 177 Source: Intercontinental Exchange, CER Daily Futures, accessed April 8, 2019, https://www.theice.com/products/26238355/CER-Daily-Futures. 178 Source: UNFCCC, CDM-Insights, accessed March 5, 2019, https://cdm.unfccc.int/Statistics/Public/CDMinsights/index.html#iss. 179 Refinitiv, Carbon Market Year in Review, January 2019. 60 from Colombian projects, most likely for use in the Figure 16 / Historic annual issuance of VCS and Colombia carbon tax. Offsets from Colombian CDM Gold Standard credits185 projects are eligible to be used in the Colombia carbon tax from the end of 2017.180 Cancellations 60 Issuances (MtCO2e) by the general public using the UNFCCC’s online Voluntary Cancellation Platform was just under 350,000 CERs.181 50 Other sources of demand remain limited. Some 40 RBCF mechanisms still purchase limited volumes of CERs, often with additional eligibility criteria (see section RBCF mechanisms), but currently the Carbon Offset and 30 Reduction Scheme for International Aviation (CORSIA) is considered to be the most likely source of demand 20 in the near term, though large uncertainties exist (see section International aviation). The prospect for demand of CERs and international credits as offsets 10 in mandatory regional, national and subnational carbon pricing initiatives is limited; of the 57 carbon 0 pricing initiatives implemented and scheduled for implementation, only the Colombia carbon tax, EU ETS, 13 14 15 16 17 18 09 10 11 12 Mexico carbon tax, Korea ETS, Slovenia carbon tax, 20 20 20 20 20 20 20 20 20 20 and Switzerland ETS and carbon tax have provisions VCS VCUs Gold Standard VERs to enable the possible use of international credits. International credits need to meet certain qualitative criteria and quantitative restrictions for usage apply. In addition, the EU ETS, historically the largest source permanence risks for land use carbon. Overall, the of demand for international credits has almost already size of the voluntary market is much smaller than fully exhausted its demand up to 2020 with 1.5 GtCO2e the compliance market; as of the first quarter of of the total demand of 1.6 GtCO2e fulfilled.182 No use 2018, more than 2,000 projects have issued over of international credits is foreseen in the EU ETS post- 430 MtCO2e of voluntary credits since 2005.184 More 2020. The other 25 carbon pricing initiatives that have than 75 percent of the issuances came from the offset provisions only allow domestic offset credits or two largest voluntary standards—Verra’s Voluntary are still developing their offset provisions.183 Carbon Standard (VCS) and the Gold Standard. Voluntary carbon market Despite its smaller size, activities within the voluntary market have been increasing, which The voluntary market is another important source could be indicative of a growing confidence in the of demand (and supply) of mitigation outcomes projects issuing voluntary credits. A closer look at the from international carbon pricing mechanisms. issuance trends of the two largest voluntary standards Voluntary market carbon pricing initiatives are also reveal that after a dip in 2014, annual issuances of important testing grounds for piloting new ideas, voluntary credits has picked up again since 2017 as such as the buffer system approach to address shown in Figure 16. 180 Source: World Bank, Carbon Pricing Dashboard, accessed March 5, 2019, https://carbonpricingdashboard.worldbank.org/map_data. 181 Source: UNFCCC, CDM Registry, accessed March 5, 2019, https://cdm.unfccc.int/Registry/index.html. 182 Source: European Commission, Report on the functioning of the European carbon market 2018, COM/2018/842 final, December 17, 2018. 183 Alberta Carbon Competitive Incentive Regulation (CCIR), Australia ERF Safeguard Mechanism, Beijing pilot ETS, British Colombia Greenhouse Gas Industrial Reporting and Control Act (GGIRCA), California cap-and-trade program (CaT), Canada federal OBPS, China national ETS, Chongqing pilot ETS, Fujian pilot ETS, Guangdong pilot ETS, Hubei pilot ETS, Kazakhstan ETS, Liechtenstein carbon tax, Newfoundland and Labrador PSS, Nova Scotia CaT, Québec CaT, RGGI, Saitama ETS, Saskatchewan OBPS, Shanghai pilot ETS, Shenzhen pilot ETS, South Africa carbon tax, Tianjin pilot ETS, Tokyo CaT, and Washington CAR. 184 Source: Ecosystem Marketplace, Voluntary Carbon Markets Insights: 2018 Outlook and First-Quarter Trends, July 27, 2018. 185 Data provided by the Gold Standard and the Verra’s VCS database. 3 / International carbon pricing initiatives 61 In terms of pricing, voluntary credit prices can programs not specifically designed for compliance change dramatically due to the various preferences markets use RBCF as a direct funding mechanism, of voluntary credit buyers. The transacted prices although they incorporate elements of the existing of voluntary credits during the first quarter of carbon market infrastructure, such as the CDM MRV 2018 ranged from under US$0.1/tCO2e to just over requirements, to help determine mitigation outcomes. US$70/tCO2e, but roughly half of the voluntary credits Analysis from the 2017 edition of the State and Trends were transacted at under 1 US$/tCO2e. of Carbon Pricing showed that RBCF could serve as a stepping stone in the transition to an international With the increasing number of carbon pricing carbon market and help to mobilize resources for initiatives around the world including even more investments in the low-carbon economy. Various domestic carbon pricing initiatives, and the Paris RBCF initiatives are already in place to support this Agreement requiring all participating countries to transition. reduce emissions, avoiding double counting will be an ever-increasing issue for the voluntary market. A By mid-2018, the Green Climate Fund (GCF) raised survey by Ecosystem Marketplace of voluntary market the equivalent of US$10.3 billion in pledges from stakeholders revealed that despite the uncertainties 43 state governments.187 On February 27, 2019, the surrounding the future of the voluntary market first ever Reducing Emissions from Deforestation and under the Paris Agreement,186 more than half of Forest Degradation (REDD+) project was approved the respondents viewed the Paris Agreement and to receive results-based payments under the GCF’s increasing domestic/regional compliance markets REDD+ pilot program. The GCF Board approved the as positive new opportunities. Specifically, many Brazilian project, which was backed by the United expected these developments to result in both a Nations Development Programme (UNDP), for the new source of demand for voluntary market projects US$96.5 million it sought for 18.8 million tCO2e of which could transition to selling offsets in domestic emission removals sequestered in the Amazon compliance markets such as in Colombia and between 2014–2015. The pilot program allows for the California. retroactive crediting of results from 2013–2018.188 RBCF mechanisms Further milestones indicating the emerging trend of more RBCF REDD+ activities, the World Bank’s RBCF is a form of climate finance where funds are Forest Carbon Partnership Facility (FCPF) has signed disbursed by the provider of climate finance to the two emissions reduction purchasing agreements recipient upon achievement of a pre-agreed set of (ERPAs) with the Countries of the Democratic Republic climate-related results. These results are typically of Congo (DRC) and Mozambique for mitigation defined at the output or outcome level, which means results from REDD+ activities in February 2019.189 that RBCF can support the development of specific These are the first two countries out of 19 that low-emission technologies or the underlying climate are part of the FCPF Carbon Fund to have signed outcomes, such as emission reductions. Some RBCF ERPAs. The total value of the ERPA for the DRC is programs purchase compliance emission reduction US$55 million, while the value for the ERPA in units, including CERs, which is helping to bridge Mozambique is US$50 million, with a goal to mitigate the current lack of demand for these units. Other 10 MtCO2e of emission by 2024. 186 Source: Ecosystem Marketplace, Voluntary Carbon Markets Insights: 2018 Outlook and First-Quarter Trends, July 27, 2018. 187 Source: GCF, GCF in Brief: The Replenishment Process, October 2018, https://www.greenclimate.fund/documents/20182/194568/GCF_in_Brief__The_ Replenishment_Process.pdf/0fc018ad-1082-d11f-f72a-b1a07e02c9d4. 188 Source: GCF, Meeting Reports, accessed March 5, 2019, https://www.greenclimate.fund/boardroom/board-meetings/documents?p_p_id=122_ INSTANCE_8e72dTqCP5qa&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&p_p_col_id=_118_INSTANCE_jUGwSITWV8c5__column-2&p_p_col_ count=1&p_r_p_564233524_resetCur=true&p_r_p_564233524_categoryId=24003#nav-category. 189 Source: World Bank, Mozambique and Democratic Republic of Congo Sign Landmark Deals with World Bank to Cut Carbon Emissions and Reduce Deforestation, February 12, 2019, http://www.worldbank.org/en/news/press-release/2019/02/12/mozambique-and-democratic-republic-of-congo-sign- landmark-deals-with-world-bank-to-cut-carbon-emissions-and-reduce-deforestation?CID=CCG_TT_climatechange_EN_EXT. 62 The depressed prices of CERs and declining global carbon offsetting initiative, which aims to interest in the CDM are resulting in declining stabilize net emissions from international aviation at mitigation activities from existing projects. RBCF 2020 level.193 CORSIA is expected to create demand can offer a useful solution to maintain capacity and for around 3 GtCO2 in the period between 2020 channel targeted finance to develop support for and 2035, making it plausible that the aviation specific types of emission mitigation activities. For sector will become the largest source of demand example, building on the work by the Pilot Auction for international credits.194 In June 2018, the ICAO’s Facility, the Nitric Acid Climate Auctions Program Council approved the Standards and Recommended (NACAP) works in collaboration with the Nitric Acid Practices (SARPs) for its CORSIA program. The SARPs Climate Action Group (NACAG) to support projects are essentially the guidelines for CORSIA, but the that reduce emissions of nitrous oxide (N2O).190 approved version in June 2018 did not contain any Currently, the World Bank expects that the NACAP will rules on the eligibility of offset credits for CORSIA. At support price guarantees for eligible N2O emission the time, ICAO’s Council mentioned that it was hoping reductions generated from nitric acid plants in the for additional clarity around the subject of Article 6 CDM or VCS after January 1, 2018. The projects must from the COP 24 negotiations. Despite the lack of also be hosted in countries that have signed NACAG’s a decision on Article 6 at COP 24, which threatened statement of undertaking lasting abatement from the to delay the issue further, ICAO’s Council approved nitric acid sector after 2020. To date, only Tunisia has the proposed text in the SARP to set broad eligibility signed this commitment.191 NACAP will host at least criteria for CORSIA offsets on March 6, 2019.195 one reverse auction, with a starting price of between US$8 and US$15. Auction winners will have to pay an The SARP does not specify details on the types of option premium of US$0.06 per carbon credit upfront activities, standards or vintages for offsets that would to purchase the put options.192 be allowed under CORSIA, though it has made clear intentions to allow for participation by activities under International Aviation Article 6. These decisions are to be made at a later date, with the assistance of a yet to be established Technical International aviation is emerging as an important Advisory Body. However, approval of the proposed potential demand source for international carbon text in the SARP on the emissions unit criteria means pricing mitigation outcomes. The International that offset programs seeking participation in CORSIA Civil Aviation Organization (ICAO) has been working would have to meet widely accepted requirements, toward the start of CORSIA since it was adopted by including additionality, avoiding double counting, and its Member States in October 2016. CORSIA is the permanence.196 190 Source: World Bank, Climate Auctions Program, accessed March 5, 2019, http://www.worldbank.org/en/programs/climate-auctions-program#1. 191 Source: NACAG, NACAG’s Partner Countries, accessed March 5, 2019, http://nitricacidaction.org/partners/eligible-countries/. 192 Source: World Bank, Climate Auctions Program, accessed March 5, 2019, http://www.worldbank.org/en/programs/climate-auctions-program#1. 193 Any additional emissions above 2020 levels must be offset, taking into account special circumstances and respective capabilities of Member States. 194 Source: German Society for International Cooperation (GIZ), Crediting Forest-Related Mitigation under International Carbon Market Mechanisms, September 7, 2018, https://newclimate.org/wp-content/uploads/2018/09/Studie_2018_REDD_and_carbon_markets.pdf. 195 Source: ICAO, Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), accessed March 5, 2019, https://www.icao.int/environmental- protection/CORSIA/Pages/default.aspx. 196 Source: ICAO, Standards and Recommended Practices Relating to the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), December 5, 2017, https://icsa-aviation.org/wp-content/uploads/2018/01/ICAO_CORSIA_draft_-SARP.pdf. 3 / International carbon pricing initiatives 63 At the same time, there is currently continued Committee (MEPC) decided on a program of follow- disagreement amongst the ICAO council members up actions to plan the forthcoming discussions on on the type of offset credits to include, such as short- (2018–2023), mid- (2023–2030), and long-term CERs and credits from domestic programs, and (post­-2030) candidate measures. The main objective whether to introduce a cut-off date based on of IMO is to meet the targets of its initial GHG strategy, when the offset credits were generated.197 This has including cutting shipping emissions by at least generated uncertainty as to the number of countries 50 percent of 2008 levels by 2050, while pursuing participating in CORSIA’s pilot phase (2021–2023), efforts to achieve full decarbonization as soon as most notably, China, which represents 12 percent possible in this century. A package of measures will of global aviation activity. Many believe that China be utilized, but countries have yet to agree upon will be participating in the pilot phase, though the a potential future market-based mechanism (i.e. country has indicated that its participation is still carbon pricing) to use in the shipping sector.200 Initial to be determined.198 Currently, 76 ICAO states discussions on a potential carbon pricing scheme are representing 76 percent of international aviation likely to take place at the MEPC 74 in May 2019, with activity intend to voluntarily participate in CORSIA more substantial conversations at MEPC 75 in April from its outset, but this does not include the major 2020. In parallel, the EU has required large ships emitters: China, India and Russia. calling at EU ports to collect verified CO2 emissions data since 2018. This mandatory MRV system 2019 is the start of the CORSIA baseline period, when was adopted by the EU in 2015 as the first step to all airlines are required to start monitoring their progressively integrate maritime emissions into emissions. The end of February 2019 was also the the EU's policy for reducing GHG emissions. Data deadline for airlines to submit their plans to monitor from this system will provide robust information their emissions.199 to support future policy-making decisions at EU level and the implementation of policy tools. From International Maritime Transport this perspective, it is worth noting that the recent EU Directive 2018/410 on the EU ETS mentions that The international maritime transport sector is ''action from the IMO or the Union should start from still exploring the use of carbon pricing. At its 73rd 2023, including preparatory work on adoption and meeting in October 2018, the International Maritime implementation and due consideration being given Organization’s (IMO) Marine Environment Protection by all stakeholders”.201 197 Source: Carbon Pulse, COP24: ICAO Dodges CORSIA Offset Decisions as EU Aims to Keep Options Open, December 4, 2018, https://carbon-pulse.com/64637/. 198 Source: Ibid. 199 Source: ICAO, CORSIA - Carbon Offsetting and Reduction Scheme for International Aviation - Implementation Plan, June 2018, https://www.icao.int/ environmental-protection/Documents/CorsiaBrochure_8Panels-ENG-Web.pdf. 200 Source: MEPC, Meeting Summaries, October 26, 2018, http://www.imo.org/en/MediaCentre/MeetingSummaries/MEPC/Pages/MEPC-73rd-session.aspx. 201 Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814. 4 Internal carbon pricing 65 4 Internal carbon pricing The private sector is increasingly integrating Following the Financial Stability Board-Task Force climate risks and opportunities into their long- on Climate-related Financial Disclosures (FSB-TCFD) term strategies and corporate governance recommendation to use internal carbon pricing as frameworks, driven by concerns from investors one of the potential metrics for disclosure on climate- to better understand companies’ exposure to long- related risks, internal carbon pricing is increasingly term climate risks. So far, about 1,300 companies, being implemented and endorsed in various forms including more than 100 Fortune Global across the financial sector as described below and in 500 companies with collective annual revenues Box 7. of about US$7 trillion, have disclosed the use of internal carbon pricing, or plans to implement −− The IFC mainstreamed the use of internal internal carbon pricing within two years.202,  203,  204 The carbon pricing in its projects in May 2018, and on reported corporate carbon prices in use are diverse, October 2, 2018, it became the first multilateral ranging from US$0.3/tCO2e to US$906/tCO2e. Some development institution to disclose climate-related companies adopt a range of carbon prices to take risks under TFCD guidelines.207 Alongside the into account different prices across jurisdictions World Bank and the Multilateral Investment and/or to factor in future increases in mandatory Guarantee Agency, the IFC will now apply a carbon prices. In total, about half of the companies carbon price in line with the 2016 Report of that have disclosed their internal carbon prices are the High-Level Commission on Carbon Prices using values that are higher than the mandatory to project finance transactions of more than prices of the jurisdictions they are headquartered 25 ktCO2 in thermal power generation, cement, in. Traditionally, companies use internal carbon and chemicals.208 pricing in their investment decisions to evaluate risks from mandatory carbon pricing initiatives.205 −− S&P Dow Jones Indices, a leading index provider, However, businesses are exploring new ways of launched the S&P Carbon Price Risk Adjusted Index using internal carbon pricing to manage long-term Series in July 2018, which measures performance climate risks.206 based on a weighted scheme on estimated market valuation at risk from predicted 2030 carbon prices.209 202 Source: CDP Disclosure 2018 203 The CDP questionnaire, including the internal carbon pricing question, experienced modifications between 2017 and 2018 in efforts to minimize reporting burden for companies and improve data precision. Therefore, no comparison is possible in terms of total numbers of companies using or planning to use internal carbon pricing. For more information, please see CDP's 2018 carbon pricing report. 204 Source: CDP, Putting a Price on Carbon- Integrating Climate Risk into Business Planning, October 2017. 205 Ibid. 206 This is implied in disclosure responses to CDP’s 2018 climate change questionnaire, in which top objectives for internal carbon pricing included driving low-carbon investment, driving energy efficiency, and changing internal behavior. 207 Source: IFC, IFC Becomes First Development Institution to Make TCFD Disclosure on Climate Risk, October 2, 2018, https://ifcextapps.ifc.org/IFCExt/Pressroom/ IFCPressRoom.nsf/0/C8A15502C84CCC698525831A00642BDC. 208 Source: IFC, Redefining Development Finance, 2018. 209 Source: Sustainable Brands, New S&P Dow Jones Index Series First to Incorporate Future Carbon Price Risks, September 2018, https://sustainablebrands.com/ read/finance-investment/new-s-p-dow-jones-index-series-first-to-incorporate-future-carbon-price-risks. 66 −− The Technical Expert Group on Sustainable nitrogen oxides, and large particulate matter based Finance was set up by the European Commission on the 2011 European Environment Agency study to examine the integration of sustainability on costs impacts of such emissions.214 considerations into its financial policy framework to mobilize finance for sustainable growth. The As climate policies, including carbon pricing, Group has included internal carbon pricing in a continue to strengthen around the world, report released in January 2019 that addresses a investments in fossil fuels become financially mandate for developing climate-related metrics less attractive and, in some cases, even a liability. on improving disclosure.210 Implementing internal carbon pricing assessments in potential investments enables regulatory risks −− The Informal Supplementary Document on to be included in business decisions and may even Sustainable Taxonomy from January 2018, which motivate fossil fuel divestment as a form of stranded was released by the High-Level Expert Group on asset risk mitigation. The divestment from fossil fuels Sustainable Finance, mentions an internal carbon is becoming a mainstream financial movement, and price as a potential screening criterion.211 commitments to divest continue to grow rapidly. As of September 2018, nearly 1,000 institutional investors −− The European Commission has launched a with US$6.24 trillion in assets have committed to targeted consultation as part of its Sustainable divest from fossil fuels. In 2015 institutional investors Finance Action Plan, with the objective of finalizing that had committed to divest from fossil fuels new guidance to companies on the disclosure accounted for a significantly lower assets value, i.e. of climate-related information. Internal carbon US$52 billion.215,  216 pricing applied in business planning is mentioned as one of the key performance indicators The divestment movement is set to grow. companies may consider disclosing. The existing Major cities around the world have made pledges guidelines on non-financial reporting, which the to abandon millions of dollars’ worth of fossil fuel commission had previously published in 2017, will stocks and bonds, reducing their exposure to climate be supplemented by the new guidelines once they policy risks. As part of this commitment, C40 Cities, are finalized in June 2019.212 in partnership with London and New York City, have launched the C40 Divest/Invest Forum, which is a −− The EBRD will integrate prices from the 2016 Report first-of-its-kind initiative that helps urban leaders of the High-Level Commission on Carbon Prices in effectively and efficiently divest from fossil fuels and project financial assessments.213 The assessments accelerate green investments.217,  218,  219 There are a 215 will include costs, country-specific conditions, or range of universities that have also started divesting an international benchmark. Emissions of local from fossil fuels.220,  221 If implemented at a sufficiently 215 air pollutants will also be taken into consideration large scale, divestments in fossil fuel stocks and bonds attributing prices per ton on sulphur dioxide, could reduce the value of the assets. 210 Source: TEG on Sustainable Finance, Report on Climate-Related Disclosures, January 2019, https://ec.europa.eu/info/sites/info/files/business_economy_euro/ banking_and_finance/documents/190110-sustainable-finance-teg-report-climate-related-disclosures_en.pdf. 211 Source: European Commission, Informal Supplementary Document on Sustainable Taxonomy, accessed March 6, 2019, https://ec.europa.eu/info/sites/info/ files/180131-sustainable-finance-final-report-annex-3_en.pdf. 212 Source: European Commission, Technical Expert Group on Sustainable Finance: Report on Climate-Related Disclosures, January 10, 2019, https://ec.europa.eu/ info/publications/190110-sustainable-finance-teg-report-climate-related-disclosures_en. 213 Source: European Bank, Methodology for the Economic Assessment of EBRD Projects with High Greenhouse Gas Emissions, January 2019. 214 Source: European Environment Agency, Revealing the Costs of Air Pollution from Industrial Facilities in Europe, November 23, 2011. 215 Source: Arabella Advisors, The Global Fossil Fuel Divestment and Clean Energy Investment Movement, September 2018. 216 Source: The Guardian, Fossil Fuel Divestment Funds Rise to $6tn, September 10, 2018, https://www.theguardian.com/environment/2018/sep/10/fossil-fuel- divestment-funds-rise-to-6tn. 217 Source: C40.Org, accessed March 5, 2019, https://www.c40.org/. 218 Source: The Guardian, As New York and London Mayors, We Call on All Cities to Divest from Fossil Fuels, September 10, 2018, https://www.theguardian.com/ commentisfree/2018/sep/10/london-new-york-cities-divest-fossil-fuels-bill-de-blasio-sadiq-khan. 219 Source: World Economic Forum, New York, London Mayors Encourage Disinvestment from Fossil Fuel Industry, October 9, 2018, https://www.weforum.org/ agenda/2018/10/new-york-london-mayors-cities-divest-carbon-fossil-fuels/. 220 Source: The Guardian, Edinburgh University Divests from All Fossil Fuels, February 6, 2018, https://www.theguardian.com/environment/2018/feb/06/ edinburgh-university-divests-from-all-fossil-fuels. 221 Source: DESMOGUK, Mapped: The UK Universities That Have Pledged to Divest from Fossil Fuels, April 13, 2018, https://www.desmog.co.uk/2018/04/13/ mapped-uk-universities-have-pledged-divest-fossil-fuels. 4 / Internal carbon pricing 67 Box 7 / Case studies on private sector finance −− BNP Paribas has decided to factor climate change considerations related to the energy transition into its rating methodology for the projects and companies it finances. Financing decisions will gradually include an internal carbon audit that accounts for changes in the transitioning energy industry and related risks. In 2016, a methodology was developed based on an assumed carbon price between US$25/tCO2e and US$40/tCO2e. The first tests were conducted in two of the six industrial sectors which generate the most emissions: oil and transport.222 −− Crédit Agricole has steadily begun analyzing climate change issues when reviewing credit applications. The Sustainable Development Chair of the Paris Dauphine University has developed a specific methodology which counts financed emissions. It classifies industry macro-sectors and geographical zones according to the carbon intensity of their financing, which is measured in tCO2/€. Their goal is to cover 80% of their financial portfolio and to define sectors that represent the largest portion of their footprint. This analysis is being introduced as an initial step for the main clients of the Bank, whose structured transactions are tenured beyond 2020.223 −− Garanti Bank uses three carbon pricing approaches for prioritizing low-carbon investments: sensitivity analysis, which diminishes the profitability of fossil fuel investments by increasing the cost of natural gas and coal in the mid- and long-term; an Environmental and Social Risk Management System, which evaluates the non-financial risks of carbon-intensive projects; and a carbon shadow price, which applies to all fossil fuel based projects and renewable energy investments in its project finance activities. Currently, Garanti applies a price of US$5/tCO2e to US$10/tCO2e and has established future prices of US$22/tCO2e from 2020, US$48/tCO2e from 2025, and US$74/tCO2e from 2030. It determined these price levels by benchmarking industry peers, monitoring the EU ETS, and integrating social costs of carbon. The bank builds flexibility into these prices based on Turkey’s regulatory situation and adjusts the price in jurisdictions where a regulation already exists.224 Internal carbon pricing is one of the components are seeing increasing activity, particularly China to meet the TCFD recommendations, and financial and India as well as in Latin America. The Brazilian institutions are also looking at other measures such development bank, BNDES, raised US$1 billion in one as green bonds.225 Annual green bond issuance has of the largest green bond offerings in Latin America. risen to more than US$155 billion globally since its Green bonds continue to gain public acceptance, inception in 2008.226 In 2018, the IFC and Amundi investor confidence, and establish standards in launched the largest green bond fund to date raising new markets that impact reporting and eligibility. US$1.5 billion for the Amundi Planet Emerging Ultimately, hurdles will be overcome so that investors Green One fund.227 Green bonds are issued in many see green bonds as a valuable asset class for the developed countries. However, emerging markets future.228 222 Source: CPLC, Carbon Pricing and the Task Force on Climate-Related Financial Disclosures (TCFD), May 2018, https://static1.squarespace.com/ static/54ff9c5ce4b0a53decccfb4c/t/5b1af63a70a6ad394e707122/1528493626398/33368-TCFD+and+Carbon+Pricing+Executive+Brief-final.pdf. 223 Source: Ibid. 224 Source: Yale, Internal Carbon Pricing at Garanti Bank, October 1, 2018, https://cbey.yale.edu/our-stories/internal-carbon-pricing-at-garanti-bank. 225 Bonds serve as an agreement between borrowers and investors. Issuers borrow funds from investors and are financially obligated to repay investors at an agreed rate after a specified amount of time. Green bonds follow this logic, but add the climate dimension by demonstrating the potential for investors to support climate solutions through safe investments without giving up financial returns. Green bonds typically finance projects in renewable energy, energy efficiency, sustainable housing, and industry. As demonstrated in its early years, green bonds can tap into financial pools such as pension funds, insurance, and sovereign wealth funds. 226 Source: IFC, Green Bonds - Perspectives, accessed April 11, 2019, https://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/ news+and+events/news/perspectives/perspectives-i1c2. 227 Source: Ibid. 228 Source: Ibid. 5 Looking beyond explicit carbon pricing 69 5 Looking beyond explicit carbon pricing 5.1 can be associated with a given policy instrument. The term implicit carbon price is used in a variety of ways Explicit and implicit in policy and academic debate. Implicit carbon pricing carbon pricing can refer to policies that impose compliance costs (i.e., an implicit price) on activities that emit carbon.229 This chapter discusses measures that put an A wide range of policies fall within this definition, such implicit price on carbon, going beyond the as performance standards for cars, buildings,230 or traditional scope of the State and Trends of Carbon power generation, and regulations that mandate the Pricing report. Previous editions have focused on use of particular abatement technologies.231 Implicit reporting global developments on the implementation carbon pricing can refer to the sum of the carbon price of measures that impose an explicit price on GHG imposed by an ETS and the net cost of renewable energy emissions, including carbon taxes and ETSs. While incentives divided by emission reductions.232 It can also this chapter does not intend to be a comprehensive refer to carbon prices imposed by energy taxes, which description of the state and trends of implicit carbon are often imposed for non-climate reasons, and fossil pricing, it does describe policies that put an implicit fuel subsidies.233 Acknowledging the existence of other price on carbon and their relevance for the policy policies that can be seen as putting a price on carbon, debate on carbon taxes and ETSs. this chapter focuses on the implicit carbon prices imposed by fuel taxes (i.e., a positive carbon price) While various policies can be seen as imposing and fossil fuel subsidies reforms, which decrease a an implicit price on carbon, this chapter focuses negative carbon price imposed by fossil fuel subsidies. on carbon prices set by fuel taxes and fossil The focus is on these two types of measures because fuel subsidies. Estimating implicit carbon prices they directly impact the price of fossil fuels and can requires an evaluation methodology to calculate the offer useful lessons for the implementation of carbon equivalent monetary value per ton of carbon that taxes and ETSs, as further discussed in this chapter. 229 Source: OECD, Effective Carbon Rates - Pricing CO2 through Taxes and Emissions Trading Systems, September 26, 2016; CPLC, Report of the High-Level Commission on Carbon Prices, May 29, 2017, Australian Government and Productivity Commission, Carbon Emission Policies in Key Economies, 2011. 230 Source: Ibid. 231 Source: OECD, Climate and Carbon: Aligning Prices and Policies, October 9, 2013. 232 Source: Marcantonini, Claudio, and A. Denny Ellerman, A.D., 2015. The Implicit Carbon Price of Renewable Energy Incentives in Germany. The Energy Journal, pp. 205-239. 233 Sources: OECD, Climate and Carbon: Aligning Prices and Policies, October 9, 2013; World Bank, Report of the High-Level Commission on Carbon Prices, May 29, 2017. 70 Hereafter, carbon prices imposed via a carbon tax lowering the costs of driving diesel and gasoline cars or an ETS are referred to as explicit carbon prices to or combusting fossil fuels for heating or generating distinguish them from implicit carbon prices. electricity, fossil fuel subsidies impose a negative price on carbon. In this way, they can incentivize Reviewing policies that put an implicit price inefficient use of carbon-intensive energy and on carbon can help bring forward explicit undermine the effectiveness of any climate change carbon pricing action. Accounting for these mitigation efforts. policies in the debate on explicit carbon pricing can help policymakers and analysts obtain a more There are several types of fuel subsidies, which are comprehensive and transparent view of the price tracked by IEA, OECD, and IMF. These institutions applied to GHG emissions in various jurisdictions over take different approaches to estimate fossil fuel time; communicate about carbon pricing with relevant subsidies. These approaches and the different types stakeholders; and learn from countries’ experience of fossil fuel subsidies are discussed in Box 8.234 with implicit carbon pricing policies, as explicit and implicit carbon pricing policies often present similar Some types of fuel subsidies have decreased in implementation challenges. recent years, while others have increased, making it difficult to describe an overall trend. Joint IEA- The remainder of this chapter unfolds as OECD estimates show that subsidies decreased follows. Section 5.2 discusses fossil fuel subsidies, from US$547 billion in 2014 to US$340 billion with the aim of providing a sense of the size and in 2017.235 IEA estimates show that between the geographical distribution of these policies 2013 and 2017 fossil fuel subsidies decreased by and the actions that have been undertaken to approximately 50 percent, from US$500 billion reduce them. This section then presents work that to US$270 billion in 2016, before increasing to integrates implicit carbon prices from fuel taxes with US$300 billion in 2017. A similar trend is highlighted explicit carbon prices to illustrate the magnitude by IMF pre-tax subsidies, which decreased from of these prices in different countries and sectors. US$530 billion in 2013 to US$270 billion in 2016, and Section 5.3 discusses the relevance of the trends then increased to US$296 billion 2017, as shown illustrated in Section 5.2 to inform the policy debate in Figure 18. While year-over-year variations can on explicit carbon pricing and possible next steps to be attributed to reforms in various countries as move this agenda forward. discussed below, they are largely due to changes in global oil prices. These oil market fluctuations are particularly impactful because subsidies for oil are a 5.2 large share of subsidy estimates in many countries, Fossil fuel subsidies and natural gas prices are, to a large extent, indexed to oil prices. For example, 72 percent of subsidies and fuel taxes as implicit in the joint IEA-OECD estimates are for petroleum carbon pricing products.236 A different trend is identified by IMF estimates for post-tax subsidies, which increased Fossil fuel subsidies can act as a negative price on from US$4.9 trillion in 2013 to US$5.2 trillion in 2017, carbon by reducing the costs of using fossil fuels as shown in Figure 18.237, 238 A key reason for this for businesses and individuals. For example, by trend is the increase in environmental damage.239 234 There are ways in which governments can support the production of fossil fuel subsidies which are not necessarily captured by the estimates discussed above. For instance, when fossil fuel producers pay only partially for losses caused by oil spills. While these subsidies might be large in some circumstances, a full discussion would go well beyond the scope of the present report. 235 Source: IEA and OECD, Update on recent progress in reform of inefficient fossil fuel subsidies that encourage wasteful consumption, forthcoming. 236 Source: Ibid. 237 Source: Coady, David; Parry, Ian; Sears, Louis; Shang, Baoping, How Large Are Global Energy Subsidies? IMF Working Paper No. 19/89, 2015. 238 Source: David Coady, Ian Parry, Nghia-Piotr Le, and Baoping Shang, Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates, IMF, Working Paper No. 19/89, 2019. 239 Source: Ibid. 5 / Looking beyond explicit carbon pricing 71 Box 8 / Types of fossil fuel subsidies and estimates by IEA, IMF, and OECD Different types of fossil fuel subsidies exist. There is one main distinction between consumer and producer subsidies. Institutions broadly agree that a consumer fuel subsidy exists when there is a positive gap between the domestic fuel price and a reference price. Thus, the subsidy can be identified via a “price-gap analysis,” which estimates consumer pre-tax subsidies and consumer post-tax subsidies. Pre-tax subsidies are defined as the difference between the supply costs of fuels and the consumer price. Post-tax subsidies include pre- tax subsidies but add tax expenditures. Tax expenditures are an indirect form of subsidies, as they include public revenue losses that a government incurs by failing to collect a tax which would otherwise be due, which provides special treatments to taxpayers. Governments can also support producers of fossil fuels and increase their profitability through budgetary transfers and tax expenditures. Subsidies to fossil fuel producers are less prone to function as negative implicit carbon prices, especially when their effect on the market price of fossil fuels is minimal and the subsidy benefit flows entirely to the recipient companies. Estimates of fossil fuel subsidies proposed by IEA, IMF, and OECD vary significantly. Some factors that explain these variations include: countries covered, choice of reference price in the price gap analysis, whether subsidies are pre-tax or post-tax, and the inclusion of subsidies that may not necessarily change consumer prices (e.g. producer subsidies in the form of direct budgetary transfers). Figure 17 shows an illustrative example of pre- and post-tax subsidies. Subjective judgement plays a role in determining what is included in fossil fuel subsidy estimates.240 The approaches taken by these institutions and the latest available estimates are briefly presented below. IEA compares observed domestic fuel prices in 41 countries, primarily in emerging markets and developing countries, with a reference price (e.g., import parity prices). This price gap is multiplied by the total quantity of fuel consumption to estimate national amounts of subsidies provided to end-users, or for consumption as an input for electricity generation. The IEA estimate of fossil fuel subsidies across these 41 countries for 2017 is US$300 billion.241 IMF tracks pre-tax and post-tax subsidies for the consumption of fossil fuels and electricity in 191 countries. To quantify the pre-tax subsidies, it uses a similar methodology as the IEA. For post-tax subsidies, the IMF sums pre-tax subsidies and tax expenditures, which include the external cost of consuming fuels (such as externalities from global warming, local air pollution, and traffic congestion and accidents for fuels used in road transport)242 and exemptions of fuels from general consumption taxes applicable to other goods (e.g. VAT) as shown in Figure 18. The IMF also estimates producers’ subsidies by building on OECD estimates (which are described below). IMF pre-tax and post-tax subsidies were respectively US$296 billion and US$5.2 trillion in 2017, with higher post-tax subsidies due to the inclusion of the tax expenditures, especially the external costs of fuel consumption.243 240 Source: Kojima, Masami. 2017. Energy Subsidies: Identifying and Quantifying Energy Subsidies. World Bank, Washington, DC. 241 IEA, World Energy Outlook 2018. 242 The IMF defines tax expenditures on the basis of the fiscal principle that goods which impose “external costs” on third parties should be taxed at higher rates than other goods where all costs associated with the consumption and production of the good are paid for by those economic agents taking the consumption and production decisions. These external costs include the health costs of air pollution: the IMF holds that forcing third parties to pay for such health costs associated with the consumption of fuels is a form of subsidy. Those paying for the health costs pollution implicitly subsidize the consumers and producers of the fuel. 243 Source: David Coady, Ian Parry, Nghia-Piotr Le, and Baoping Shang, (2019) Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates, IMF, Working Paper No. 19/89. After excluding the cost of externalities, the subsidies are estimated at about US$634 billion in 2015 and about US$626 billion in 2017 (own calculations using IMF data - IMF Country-level Subsidy Estimates Database, 2018). 72 Figure 17 / Illustrative example of pre- and post-tax subsidies on gasoline $1.50 Socially Classification optimal price (economic) $1.00 $0.60 Private costs Social costs (externalities) GOVERN- Cost to CONSUMER MENT SOCIETY Price $0.80 $0.10 $0.10 $0.30 $0.20 $0.10 (1) (2) (3) (4) (5) (6) Monetized Price at pump Pretax subsidy Forgone VAT (2) Local health costs Congestion costs Global warming costs cost type Classification $0.80 $0.80 (fiscal) Subsidized price Post-tax subsidy Energy price reform, or fossil fuel subsidy reform or Corrective policies Environmental taxation, or carbon taxation or Source: Pigato, Miria, A., Editor, Fiscal Policies for Development and Climate Action. International Development in Focus, Washington, DC: World Bank, 2019. Note: Figures show potential divergence between private costs for 1 liter of gasoline and socially optimal prices due to negative externalities. All estimates are fictional. $ = US dollar. VAT = value added tax. OECD compiles governments' direct budgetary support and tax expenditures for fuel consumption and production in the 36 OECD countries and 8 partner economies (Argentina, Brazil, Colombia, China, Indonesia, India, Russia and South Africa). OECD does not identify subsidies via a price-gap analysis. Instead it relies on an inventory of measures that support fossil fuels. Contrary to IMF, OECD does not include externalities in tax expenditures when estimating fossil fuel subsidies. According to OECD, subsidies in 2017 are estimated at about US$140 billion, with partner economies accounting for US$59 billion.244 OECD and IEA also provide joint-estimates of fossil fuel subsidies. These estimates cover 76 countries and account for subsidies provided via price transfers, tax expenditures (not including the external cost of fuel consumption), and budgetary transfers. The latest available OECD-IEA estimates are for 2017 and show that subsidies were US$340 billion.245 244 Source: OECD, OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018, February 21, 2018. 245 Source: IEA and OECD, Update on recent progress in reform of inefficient fossil fuel subsidies that encourage wasteful consumption, forthcoming. 3 / Headline section lorem Ipsum 73 Figure 18 / Global energy subsidies, 2011–15 6,000 7 US$ billions (nominal) Percetnt of Global GDP 6 5,000 5 4,000 4 3,000 2 2,000 2 1,000 1 0 0 2010 2011 2012 2013 2014 2015 2016 2017 Pre-tax subsidies, US$ billion, (lhs) Post-tax subsidies, US$ billion, (lhs) Source: Coardy et al. 2019 Pre-tax subsidies, % global GDP, (rhs) Post-tax subsidies, % global GDP, (rhs) Fossil fuel subsidies vary substantially across 10–14 percent) in Iran, Libya, and Turkmenistan.247 countries, and in some countries, they account for IMF’s estimates for 2017 show that post-tax subsidies a large share of gross domestic product (GDP), and, account for 6.5 percent of GDP globally. In 2015, if reformed, could generate significant savings. these subsidies accounted for a much larger share Fossil fuel subsidies estimated by IEA and IMF (pre-tax of GDP in the Middle East, Afghanistan and Pakistan subsidies) are substantially higher in countires such (13 percent), several former Soviet Union countries as China, of which IEA estimates total US$38.3 billion (36 percent),248 and developing countries in Asia and IMF estimates total US$29.7 billion, and Iran, of (12 percent).249 While post-tax subsidies represent a which IEA estimates total US$45.1 billion and IMF larger percentage of GDP in these regions, in absolute estimates total US$36.8billion.246 IEA also estimates terms they are highly concentrated in G20 economies. that in 2017, in the 41 countries covered by its analysis, IMF data shows that in 2017, 81 percent of post- fossil fuel subsidies averaged 2.9 percent of GDP and tax subsidies were accrued by G20 countries.250 accounted for a much larger share of GDP (between If reformed, fossil fuel subsidies could generate 246 Sources: for IEA see https://www.iea.org/weo/energysubsidies/, for IMF the data comes from- IMF Country-level Subsidy Estimates Database, 2018. 247 Source: IEA, World Energy Outlook - Fossil-Fuel Subsidies, accessed April 15, 2019, https://www.iea.org/weo/energysubsidies/. 248 In particular, for former URSS countries the estimate refers to the Commonwealth of Independent States, i.e., Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine. 249 Source: David Coady, Ian Parry, Nghia-Piotr Le, and Baoping Shang, (2019) Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates, IMF, Working Paper No. 19/89. 250 Authors' calculations using IMF data - IMF Country-level Subsidy Estimates Database, 2018. 74 significant savings and enable higher expenditures the Philippines under APEC. Finland and Sweden have on key development priorities. IMF estimates indicate also completed self-reviews of their subsidies.258 In that projected revenues saved from phasing out 2019, the Coalition of Finance Ministers for Climate post-tax fossil fuel subsidies would have amounted Action signed the Helsinki Principles, which includes to approximately US$3.2 trillion in 2017, equating to the intention to work towards increasing carbon 4 percent of global GDP.251 prices, partially through the reduction or elimination of fossil fuel subsidies.259 Phasing out fossil fuel subsidies has been a stated policy objective of many countries for at least a Despite efforts from countries to reform fossil decade. If implemented, it would reduce negative fuel subsidies in recent years, global progress implicit carbon prices. In 2009, G20 and APEC has been slow. As discussed above, IMF post-tax countries pledged to rationalize and phase out fossil subsidies have increased in recent years, and most fuel subsidies that incentivize wasteful consumption of the observed reductions in IMF’s estimated pre- in the medium-term.252 This commitment has been tax subsidies, as well as in OECD and IEA’s estimates subsequently reaffirmed on several occasions. In of subsidies, can be attributed to reduced oil prices. 2010, a group of countries formed the coalition Friends However, some countries have reduced fossil of Fossil Fuel Subsidies Reforms to support G20 and fuel subsidies through reforms, allowing them to APEC countries in phasing out fossil fuel subsidies as increase spending on public priorities. Indonesia soon as possible.253 In 2017, V20 countries called for has recently reformed energy subsidies, reducing the elimination of fossil fuel subsidies and urged the them from 3.3 percent of GDP on average from G20 to set a clear timeframe for their elimination.254 2012-2014, to an average of 0.9 percent of GDP from In the same year, investors and insurers with more 2015-2018.260,  261 This decline was partially due to than US$2.8 trillion in assets under management decreasing international oil prices, though it is also asked G20 countries to phase out fossil fuel the result of the government eliminating subsidies subsidies.255 Following these commitments, several on gasoline and reducing subsidies on diesel and G20 economies started, or even concluded, voluntary kerosene.262 Savings from these reforms increased peer-review processes of fossil fuel subsidies. the share of spending on health, infrastructure and These include Argentina, Canada, China, Germany, social services.264 In Egypt, fossil fuel subsidies were Indonesia, Italy, Mexico, and the US under the G20,256 reduced from 7 percent of GDP in 2014 to 2.7 percent as well as Taiwan, China,257 New Zealand, Peru, and in 2017. Egypt aims to further reduce subsidies 251 Please note that savings from fossil fuel subsidies as a percentage of GDP remain significantly larger than carbon revenues. For instance, carbon revenues from the Finland carbon tax on transport fuels account for about 1 percent of the national GDP, which is one of the largest shares among countries that have implemented explicit carbon pricing. Source: David Coady, Ian Parry, Nghia-Piotr Le, and Baoping Shang, Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates, IMF, Working Paper No. 19/89, 2019. 252 Source: APEC, 2009 Leaders’ Declaration, November 14, 2009, https://www.apec.org/Meeting-Papers/Leaders-Declarations/2009/2009_aelm.aspx; G20, G20 Leaders Statement: The Pittsburgh Summit, September 24, 2009, http://www.g20.utoronto.ca/2009/2009communique0925.html. 253 Source: FFFsR, FFFsR Statements, accessed April 15, 2019, http://fffsr.org/statements/. Countries part of this group are Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden, Switzerland, Uruguay. 254 Source: V-20, Ministerial Dialogue IV of the Vulnerable Twenty (V20) Group, April 23, 2017, https://www.v-20.org/v20-ministerial-communique-ministerial- dialogue-iv/. 255 Source: UNFCCC, G20 Must Phase Out Fossil Fuel Subsidies by 2020, February 15, 2017, 20, https://unfccc.int/news/g20-must-phase-out-fossil-fuel-subsidies- by-2020. 256 The peer reviews of China, Germany, Mexico, and the US are available at Source: OECD, G20 Voluntary Peer Reviews of the Reform of Inefficient Fossil Fuel Subsidies, 2017, http://www.oecd.org/site/tadffss/publication/. 257 Source: APEC, Peer Review on Fossil Fuel Subsidy Reforms in Chinese Taipei, July 2017, https://www.apec.org/Publications/2017/07/Peer-Review-on-Fossil-Fuel- Subsidy-Reforms-in-Chinese-Taipei. 258 Source: Ivetta Gerasimchuk, Peter Wooders, Laura Merrill, Lourdes Sanchez, Lucy Kitson, A Guidebook to Reviews of Fossil Fuel Subsidies: From Self-Reports to Peer Learning, IISD, 2017. 259 Source: World Bank, Finance Ministers Join Forces to Raise Climate Ambition, accessed 10 May, 2019, http://www.worldbank.org/en/news/press- release/2019/04/13/coalition-of-finance-ministers-for-climate-action?cid=CCG_TT_climatechange_EN_EXT. 260 Source: World Bank, Indonesia 3rd Fiscal Reform Development Policy Financing (P167297): World Bank (Pipeline Project), March 29, 2019, http://documents. worldbank.org/curated/en/772961539355813625/pdf/Concept-Program-Information-Document-PID-Indonesia-Fiscal-Reform-DPL-3-P167297.pdf. 261 Source: IEA, Fossil Fuel Subsidy Reform in Mexico and Indonesia, 2016. 262 Source: Sudarshan Gooptu, World Bank, and ESMAP, Assessing the Fiscal Cost of Subsidies and Fiscal Impact of Reform, n.d., http://documents.worldbank.org/ curated/en/958771530881102150/pdf/ESRAF-note-2-Assessing-the-Fiscal-Cost-of-Subsidies-and-Fiscal-Impact-of-Reform.pdf. 263 Source: World Bank, Indonesia 3rd Fiscal Reform Development Policy Financing (P167297): World Bank (Pipeline Project), March 29, 2019, http://documents. worldbank.org/curated/en/772961539355813625/pdf/Concept-Program-Information-Document-PID-Indonesia-Fiscal-Reform-DPL-3-P167297.pdf. 5 / Looking beyond explicit carbon pricing 75 to 0.5 percent of GDP in 2019. These reductions expressed in €/tCO2.272 IMF “Effective Carbon Prices” created fiscal space that enabled the government to are estimated using a similar methodology, which increase spending on social protection, health and however accounts for the effectiveness of each policy education.264 Additionally, in 2018, the government instrument (e.g., fuel taxes, ETSs, and carbon taxes) of Tunisia committed to improving the existing fiscal to drive abatements compared to an economy-wide deficit in the medium-term through measures such carbon tax.273 The resulting Effective Carbon Price is as reducing energy subsidies. Energy subsidies were the equivalent economy-wide carbon price that, if originally 2.8 percent of GDP, of which fuel subsidies implemented, would yield the same abatements as accounted for the largest share at 1.8 percent. the combined effect of the carbon taxes, ETSs, and Following the 2018 commitment, electricity and gas fuel taxes existing in a country.274 tariffs were progressively increased. Once all planned increases are completed, savings are expected to Even when implicit carbon prices from fuel taxes equal 0.2 percent of GDP.265 are integrated with explicit carbon prices, the resulting carbon prices are too low compared to Raising the cost of carbon-emitting activities can relevant benchmark levels. The State and Trends of be done through specific taxes on fossil fuels. Carbon Pricing report series has shown that explicit IMF and OECD’s work integrates implicit carbon carbon prices are too low to deliver on the Paris prices imposed via fuel taxes with ETSs and Agreement, according to estimates put forward by carbon taxes. Countries apply taxes to fossil fuels for the High-level Commission on Carbon Prices of at various purposes, and those taxes have the effect of least US$40/tCO2 to US$80/tCO2 by 2020.275 Using a also implicitly pricing carbon.266 Examples include coal different benchmark, i.e., the social cost of carbon, taxes, such as the 2017 Philippine excise tax of US$2 the OECD demonstates that even when accounting for per ton of coal267 and the India Goods and Services carbon prices set by fuel taxes, aggregate carbon prices Tax, which also applies to coal and substitutes the (i.e. implicit and explicit) remain too low. OECD tracks Clean Energy Cess,268 as well as more common progress on Effective Carbon Rates by measuring a gasoline taxes,269 such as the Kenyan gasoline tax, “carbon pricing gap,” which is measured by comparing which was recently increased to US$0.2 per liter.270 the OECD’s effective carbon rates across a country’s OECD converts specific taxes on fuels into carbon tax carbon emissions base to a reference price of equivalents by dividing taxes per unit of fuel or per €30 (US$34) and €60 (US$67). Based on a literature unit of energy by the carbon content.271 The carbon review, OECD considers the €30 (US$34) benchmark tax equivalents are then integrated with carbon taxes a low-end estimate of the social costs of carbon in and tradable emission permit prices, and the results— 2015276 and the €60 (US$67) benchmark a midpoint referred to by OECD as “Effective Carbon Rates”—are estimate of these costs in 2020 and a low-end 264 Source: Sudarshan Gooptu, World Bank, and ESMAP, Assessing the Fiscal Cost of Subsidies and Fiscal Impact of Reform, n.d., http://documents.worldbank.org/ curated/en/958771530881102150/pdf/ESRAF-note-2-Assessing-the-Fiscal-Cost-of-Subsidies-and-Fiscal-Impact-of-Reform.pdf. 265 Source: World Bank, Tunisia Investment, Competitiveness and Inclusion, June 27, 2018, http://projects.worldbank.org/P161483?lang=en. 266 While fuel taxes can be seen as imposing an implicit price on carbon, their use for mitigation call for careful consideration because a fuel tax increase can sometimes result in higher emissions. This could occur, for instance, when the increase of a tax on one fuel induces higher consumption of another fuel that has a higher carbon content per unit of useful energy. 267 Source: Government of the Philippines, Congress Act No. 10963, July 24, 2017, https://www.senate.gov.ph/republic_acts/ra%2010963.pdf. For more details on specific taxes on energy use see also OECD, Taxing Energy Use 2018: Companion to the Taxing Energy Use Database, OECD Publishing, Paris, 2018. 268 For a recent analysis of the impacts of the Goods and Services Tax on the cost of energy production see Soman et al., India’s Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs, IISD, 2019. 269 Gasoline taxes are common fiscal instruments in many countries, see Ross, M.L., Hazlett, C. and Mahdavi, P., Global progress and backsliding on gasoline taxes and subsidies, Nature Energy, 2(1), p.16201, 2017. 270 Source: EY, Kenya Adjusts Excise Duty Rates, accessed December 11, 2018, https://taxinsights.ey.com/archive/archive-news/kenya-adjusts-excise-duty-rates.aspx. 271 Source: OECD, Effective Carbon Rates 2018 - Pricing Carbon Emissions Through Taxes and Emissions Trading, September 18, 2018. 272 Source: Ibid. 273 Source: IMF, Fiscal Policies for Paris Climate Strategies—From Principle to Practice, IMF Policy Paper, 2019. 274 Source: Ibid. 275 Source: High-Level Commission on Carbon Prices. Report of the High-Level Commission on Carbon Prices, Washington, DC: World Bank, 2017. The report also acknowledge that low income countries may apply lower carbon prices, for instance, to account for historical emissions in different regions of the world. 276 Global efficient prices are sensitive to diverging views on discounting and on how to account for extreme risks, as discussed in Stern, Nicholas, The Economics of Climate Change: The Stern Review Cambridge: Cambridge University Press, 2007; Weitzman, Martin L., Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change, Review of Environmental Economics and Policy Vol. 5, pp. 275-92, 2011. Also, some countries use domestic estimates of the social cost of carbon, which may diverge from global estimates. Thus, there is not necessarily consensus among academics and policymakers on the use of a particular global efficient price as a benchmark to track progress on climate change mitigation. 76 estimate of these costs in 2030.277 According to the Benin (US$96.7/tCO2), Democratic Republic of the OECD analysis, under the €30 (US$34) benchmark the Congo (US$148.5/tCO2), Paraguay (US$180.5/tCO2), overall gap is slowly narrowing, but remains high, as Togo (US$100/tCO2), and Uruguay, (US$98.8/tCO2).283 it decreased from 83 percent in 2012 to 79.5 percent Note that none of these countries have an explicit in 2015, and has been estimated to further decrease carbon pricing instrument in place. Thus, if we to 76.5 percent in 2018.278 In 2015, this carbon pricing considered only these instruments, the resulting gap ranged between 27 and 100 percent across carbon price level applied in these jurisdictions would countries, with the lowest gaps prevailing in Norway be zero. At a regional level, IMF Effective Carbon Prices and Switzerland.279 There are also large differences tend to be higher in Africa, than in other regions.284 in the carbon pricing gap across sectors, with road IMF Effective Carbon Prices also vary significantly per transport having the lowest gap by far (21 percent), type of fuel. They are highly concentrated on diesel and electricity generation, commercial, residential and and gasoline, and in many countries the Effective industry sectors having a gap above 80 percent.280,  281 Carbon Price applied to coal and natural gas is, or The carbon pricing gap could be significantly larger in is close to, US$0/tCO2.285 Please note that there can many countries if fuel taxes that address non-climate be large differences in aggregated (i.e. implicit and externalities, such as those that address the health explicit) carbon prices as measured by OECD and consequences of local pollution and the deterioration IMF methodologies. For instance, the OECD Effective of roads, were not considered when pricing carbon. Carbon Rate for the US is US$22/tCO2, against the IMF Besides failing to internalize the social cost of carbon, Effective Carbon Price of US$6/tCO2 in 2030.286 these price levels are also below the Paris-compatible price levels identified by the High-Level Commission on Carbon Prices. In this respect, it is important 5.3 to stress that these Paris-compatible carbon price ranges refer exclusively to explicit carbon prices and The relevance of implicit not to implicit carbon prices imposed by fuel taxes carbon pricing for explicit and fossil fuel subsidies reforms. carbon pricing policies IMF Effective Carbon Prices also show that even when accounting for both implicit and explicit carbon This section discusses why implicit carbon prices set prices, in most jurisdictions the combined estimates by fossil fuel subsidies and fuel taxes are relevant for remain too low to deliver on the Paris-agreement. the policy debate on explicit carbon pricing and the IMF estimates of Effective Carbon Prices in 2030 efforts that are needed to move forward. show that most prices range between US$0/tCO2 to US$30/tCO2,282 which is significantly below the Paris- Considering fuel taxes and fossil fuel subsidies compatible carbon price levels identified by the together with explicit carbon prices provides a High-Level Commission on Carbon Prices for 2030 more comprehensive view of countries’ progress (US$50/tCO2 to US$100/tCO2). Some countries have on explicit carbon pricing. It is widely recognized significantly higher Effective Carbon Prices, such as in academic research and policy circles, including 277 Source: OECD, Effective Carbon Rates 2018 - Pricing Carbon Emissions Through Taxes and Emissions Trading, September 18, 2018. 278 Source: Ibid. 279 Source: Ibid. 280 Source: Ibid. 281 While the gap is overall decreasing, recent evidence also indicates that taxes on some type of fuel actually decreased globally on average. For example, between 2003-2015 the global mean gasoline tax decreased by more than 13 percent. This is because while gasoline taxes increased in some countries, gasoline consumption grew more in countries with lower tax rates. Source: Ross, Michael L., Chad Hazlett, and Paasha Mahdavi., P., 2017. Global progress and backsliding on gasoline taxes and subsidies. Nature Energy, 2(1), p.16201. 282 Source: IMF, Fiscal Policies for Paris Climate Strategies—From Principle to Practice, IMF Policy Paper, 2019. 283 Source: Ibid. 284 Source: Ibid. 285 Source: Ibid. 286 Source: Ibid. 5 / Looking beyond explicit carbon pricing 77 in the recent IPCC 1.5°C Report, that explicit carbon externalities, and reduce policies that counteract pricing is a pillar of cost-effective mitigation policy.287 and distort the price signal from explicit carbon However, the level of explicit carbon prices needed pricing, such as fossil fuel subsidies.291 Highlighting to deliver on the Paris Agreement depends on the the countervailing effects of fossil fuel subsidies on climate policy environment, as recognized by the explicit carbon pricing can help make the case for High-level Commission on Carbon Prices report288 policy alignment, which is an important condition for (see also Box 2). Carbon prices will need to be even the effectiveness of explicit carbon pricing policies.292 higher if sufficient action is not taken.289 Thus, the metrics used in the State and Trends of Carbon Pricing Discussing implicit carbon pricing policies can be report series to measure progress of explicit carbon a good entry point for starting to explore explicit pricing policies, such as the number of initiatives, carbon pricing policies, especially if the debate scope of coverage, and level of explicit price, capture highlights the co-benefits of these policies. This an important, but incomplete picture of the progress year’s developments, as described in Chapter 2, made by different jurisdictions towards implementing demonstrate that explicit carbon pricing is subject to Paris-compatible carbon prices. For instance, as push back from various interest groups and the public. discussed above, IEA and IMF (pre-tax and post-tax There are many reasons for this, including difficulty in subsidies) have increased globally in 2017, which is a communicating the climate and non-climate benefits relevant factor when discussing aggregate trends of of explicit carbon pricing.293 The climate benefits of implicit and explicit carbon prices. Therefore, looking carbon pricing tend to be diffuse, difficult to measure beyond explicit carbon prices by integrating analyses and observe, and are concentrated in the medium- of implicit carbon pricing policy is a key step toward to long-term, while the costs are concentrated and providing a more comprehensive view of the progress short-term. Efforts have been taken to address these that countries are making to cost-effectively meet the concerns effectively,294 but progress on explicit carbon objectives of the Paris Agreement.290 pricing is still far from the levels needed to deliver on the Paris Agreement. Looking at implicit carbon Discussing fossil fuel subsidies and fuel taxes pricing can help jurisdictions realize that they may together with explicit carbon pricing can help already implicitly price carbon in some way, even if it is reach policy alignment. As discussed in 2016 edition done negatively. Thus, explicit carbon pricing is largely of the State and Trends of Carbon Pricing, strengthening an extension of, and not a radical departure from, the abatement effectiveness of explicit carbon policies that are already in place. Discussing fossil fuel pricing may require implementing instruments that subsidies and fuel taxes in terms of implicit carbon complement carbon taxes and ETSs, such as subsidies pricing may help businesses and individuals become for research and development to address knowledge familiar with the idea of putting an explicit price on 287 Source: IPCC, Global Warming of 1.5°C, 2018. The cost effectiveness of carbon pricing depends also on the use of revenues. In particular, cost-effectiveness tends to be higher when revenues are devoted to increase economic efficiency, such as when they are used to cut distortionary taxes or fund productive investments, see: IMF, Fiscal Policies for Paris Climate Strategies - from Principle to Practice, IMF Policy Paper, 2019. 288 Source: CPLC, Report of the High-Level Commission on Carbon Prices, May 29, 2017. 289 Please note that the cost of emitting carbon depends also on fossil fuel prices, which can vary substantially over time. 290 It is important to acknowledge that an even more comprehensive view could be attained by considering also the abatement incentives of other policies, such as regulation. However, these are often unavailable. 291 While being a key instrument for cost-effective climate change mitigation, carbon pricing is generally more effective when included in a carefully crafted policy package for climate mitigation. For further information, please refer to World Bank, Ecofys, and Vivid Economics, State and Trends of Carbon Pricing 2016, October 2016. 292 For a comprehensive discussion on how to combine implicit and explicit carbon pricing instruments effectively and efficiently see Partnership for Market Readiness (PMR), Reconciling Carbon Pricing and Energy Policies in Developing Countries – Integrating Policies for a Clean Energy Transition, World Bank, Washington, DC, 2019. Please also note that explicit carbon pricing might not be a viable in some countries, for instance, because of resistance from vested interests. In these situations, policymakers could start implementing other policies that implicitly price carbon, such as feebate schemes that do not increase the price of energy. For a discussion of these policies see IMF, Fiscal Policies for Paris Climate Strategies—From Principle to Practice, IMF Policy Paper, 2019. 293 Source: David Klenert, Linus Mattauch, Emmanuel Combet, Ottmar Edenhofer, Cameron Hepburn, Ryan Rafaty, Nicholas Stern, Making carbon pricing work for citizens, Nature Climate Change, 8(8), pp. 669-77, 2018. 294 Source: Partnership for Market Readiness; Carbon Pricing Leadership Coalition, Guide to Communicating Carbon Pricing. World Bank, Washington, DC, 2018; Dirk Heine, and Simon Black, Benefits Beyond Climate: Environmental Tax Reform, 2019. Miria Pigato, Fiscal Policies for Development and Climate Action, World Bank: Washington DC. 78 carbon. Additionally, communicating the existence carefully crafted communication strategies,296 which of negative carbon prices can help build public are important elements for catalyzing public support support for explicit carbon pricing by highlighting for carbon pricing.297 Countries like Iran (2010) discrepancies in how various sectors of the economy and Jordan (2012) have also gained experience in are paying for their emissions. Highlighting economic addressing the poverty effects of fossil fuel subsidy and fiscal co-benefits of implicit carbon pricing reforms via direct cash transfers or other direct can also expand interest in explicit carbon pricing, benefit programs.298 For example, the government of especially in developing and low-emissions countries, Jordan (2012) used various social safety net measures where carbon mitigation is often a low priority. to protect vulnerable groups, including cash transfers to low income households, a targeted food subsidy Lessons learned from implementing implicit program, and increasing the public sector wages carbon pricing policies can help increase ambition for lower income households.299 Iran implemented on explicit carbon pricing. The political economy electronic cash transfers that accounted for 50 of explicit carbon pricing sometimes resembles the percent of projected savings from fossil fuel subsidies political economy of fossil fuel subsidy reform. For reforms.300 This use of savings had a positive effect on example, both measures tend to yield energy price reducing inequality in the country.301 The remaining increases, which impacts households and industries; savings were used to mitigate the impact of the they also yield co-benefits, such as reducing local reform on businesses and the public sector.302 Similar pollution, and revenues that could be spent to schemes can be implemented to reduce the potential mitigate the potential regressive impacts of these impacts of explicit carbon pricing. Technologies, such measures or finance development priorities.295 Many as mobile money, may allow for the distribution of countries that do not have an explicit carbon pricing carbon revenues to large segments of the population initiative in place have experience with introducing in the rural areas of developing countries, such as higher fuel taxes and reducing fossil fuel subsidies. Kenya and Ivory Coast.303 The Energy Subsidy Reform Countries that have reformed, or are in the process Assessment Framework (ESRAF) and its guidance of reforming, fossil fuel subsidies could build on these notes developed by the Energy Sector Management experiences to implement explicit carbon pricing. For Assistance Program of the World Bank present instance, Indonesia (2005), Iran (2010), and Jordan country experiences with reforming energy subsidies (2012) were able to reform fossil fuel subsidies also and offer a useful toolkit for exploring these issues in because of extensive stakeholder engagement and greater detail.304 295 Source: Adrien Vogt Schilb, and Stephane Hallegatte, 2017. Climate Policies and Nationally Determined Contributions: Reconciling the Needed Ambition with The Political Economy. Wiley Interdisciplinary Reviews: Energy and Environment, 6(6), p. 256. For an extensive discussion of the distributional impacts of these measures see Partnership for Market Readiness (PMR), Reconciling Carbon Pricing and Energy Policies in Developing Countries – Integrating Policies for a Clean Energy Transition, World Bank, Washington, DC, 2019. 296 Source: Inchauste, Gabriela, and David G. Victor, Editors, The Political Economy of Energy Subsidy Reform. Directions in Development, Washington, DC: World Bank, 2017. 297 Source: Carattini, Stefano, Maria Carvalho, and Sam Fankhauser, Overcoming Public Resistance to Carbon Taxes, Wiley Interdisciplinary Reviews: Climate Change, 9(5), p. 531, 2018; Partnership for Market Readiness; Carbon Pricing Leadership Coalition, Guide to Communicating Carbon Pricing, World Bank, Washington, DC, 2018. 298 Sources: Pigato, Miria A., Fiscal Policies for Development and Climate Action (English), Washington, D.C. : World Bank Group, 2019; Ruslan Yemtsov and Amr Moubarak, Good Practice Note 5, Assessing the readiness of Social Safety Nets to Mitigate the Impact of Reforms, ESMAP, 2018; Guillaume, Dominique M., Roman Zytek, and Mohammad Reza Farzin, Iran: The Chronicles of the Subsidy Reform, Washington DC, 2011; Salehi-Isfahani, Djavad, Iran: Subsidy Reform amid Regional Turmoil, Brookings, Washington, DC, March 3, 2011. 299 Sources: Pigato, Miria A., Fiscal Policies for Development and Climate Action (English). Washington, D.C.: World Bank Group, 2019; Ruslan Yemtsov and Amr Moubarak, Good Practice Note 5, Assessing the Readiness of Social Safety Nets to Mitigate the Impact of Reforms, ESMAP, 2018. 300 Source: Guillaume, Dominique M., Roman Zytek, and Mohammad Reza Farzin (2011). Iran: The Chronicles of the Subsidy Reform. Washington DC. 301 Inequality measured via the Gini coefficient was reduced from 0.42 to 0.34, Salehi-Isfahani, Djavad, Iran: Subsidy Reform amid Regional Turmoil. Brookings, Washington, DC, March 3, 2011. 302 Source: Guillaume, Dominique M., Roman Zytek, and Mohammad Reza Farzin, Iran: The Chronicles of the Subsidy Reform, Washington DC, 2011. 303 Source: Dominioni Goran and Heine Dirk, Behavioural Economics and Public Support for Carbon Pricing: A Revenue Recycling Scheme to Address the Political Economy of Carbon Taxation, European Journal of Risk Regulation, 2019. 304 The Energy Subsidy Reform Assessment Framework is available online: https://esmap.org/esraf. 5 / Looking beyond explicit carbon pricing 79 Obtaining more comprehensive estimates of the discussions than direct budgetary expenditures.308 carbon prices applied within a country increases Additionally, coal supply costs, which are useful for transparency of climate action, potentially identifying potential price gaps, are not always easily enabling greater ambition over time. Countries do determined, as there is no single international price.309 not internalize all of the benefits of their abatements Efforts are underway to harmonize international and and are generally incentivized to underinvest in national level data on fossil fuel subsidies under the climate mitigation. Explicit carbon pricing, fuel taxes, Sustainable Development Goals 12.C.1 indicator.310 and fossil fuel subsidies are an important component From 2020 to 2030, the United Nations Environment of the mitigation incentives that could prevail in Programme (UNEP) is expected to collect national data different jurisdictions, especially when considered of fossil fuel subsidies from 193 member countries, together.305 Reaching comparable estimates of the though submissions are voluntary.311 UNEP is also combined (i.e. implicit and explicit) carbon price responsible for developing an internationally agreed set by these policies would increase transparency upon method to monitor fossil fuel subsidies at the in and allow comparisons of the overall mitigation global, regional and national level.312 A second aspect action undertaken in different countries. Increased that requires further work involves the integration of transparency can help building trust across countries positive and negative carbon prices in single estimates. and increase the scale of climate ambition. This could also potentially include marginal price signals from policies other than fossil fuel subsidies, Moving forward, valuable work could be done to fuel taxes, and explicit carbon pricing, such as tradeable improve data availability on these policies and performance standards.313 Looking forward, work that expand analyses that account for both implicit and combines positive and negative carbon prices could explicit carbon pricing to reach more comprehensive be very helpful for advancing the policy debate on estimates. It is widely recognized that data availability carbon pricing. Expanding analyses to policies beyond and comparability are a hurdle to reaching consistent fossil fuel subsidies and fuel taxes could also inform cross-country estimates of fossil fuel subsidies, discussions in the context of Article 6 mechanisms. especially in developing countries.306 For example, a Further editions of this report could discuss how such large proportion of subsidies for fossil fuels are granted policies, and the mitigation outcomes they generate, in the form of tax expenditures, such as deductions, can be considered in carbon markets, building on the exemptions, or delayed tax liabilities,307 which are often results from on-going “policy based” pilots described in subject to lower levels of scrutiny in parliamentary Chapter 3. 305 Note that the climate mitigation effects of fossil fuel subsidy removal alone can be large but depend on the type of fossil fuel subsidies removed. Recent research shows that subsidies removal (estimates closer to IEA, OECD, and IMF pre-tax subsidies than to IMF post-tax subsidies) would reduce carbon emissions by 1-4 percent by 2030. Since coal, the fossil fuel that emits more carbon per unit of energy receives a small share of these subsidies, subsidies removal yields limited global abatements. The sharp decline in fossil fuel subsidies in the period 2013-2015 can also account for this result. Earlier studies had indicated that carbon abatements from phasing out fossil fuel subsidies would have been larger, i.e., between 3.5-5 percent by 2020; 5-6 percent by 2035; and between 6-9 percent by 2050, see Jewell, Jessica, et al., Limited Emission Reductions from Fuel Subsidy Removal except in Energy-Exporting Regions, Nature, February 8, 2018. Abatements would be substantially larger, about 28 percent in 2015, if post-tax subsidies were phased out, see David Coady, Ian Parry, Nghia-Piotr Le, and Baoping Shang, Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates, IMF, Working Paper No. 19/89, 2019. Another study indicates that reforming fossil fuel subsidies in 20 countries could reduce national carbon emission by 11 percent on average by 2020, see Merrill, Laura, Bassi, Andrea M., Bridle, Richard, Christensen, Lasse T., Tackling Fossil Fuel Subsidies and Climate Change: Levelling the Energy Playing Field, Nordic Council of Ministers, 2015. 306 Source: Kojima, Masami, Energy Subsidies: Identifying and Quantifying Energy Subsidies, World Bank, Washington, DC, 2017. 307 For instance, tax expenditure account for 64 percent of the value of subsidies in the OECD inventory, OECD, OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018, OECD Publishing, Paris, 2018. 308 Source: World Bank Group, Climate Change Public Expenditure and Institutional Review Sourcebook, World Bank Group, 2014. 309 Source: Ross, Michael L., Chad Hazlett, and Paasha Mahdavi, Global Progress and Backsliding on Gasoline Taxes And Subsidies, Nature Energy, 2(1), p. 16201, 2017. 310 Source: UN, Sustainable Development Goal 12: Ensure sustainable consumption and production patterns, accessed May 13, 2019, https://sustainabledevelopment.un.org/sdg12. 311 GIZ and UNEP, Measuring fossil fuel subsidies in the context of the Sustainable Development Goals, accessed May 12, 2019, http://www.greenfiscalpolicy.org/ policy-insights/energy/measuring-fossil-fuel-subsidies-in-the-context-of-the-sustainable-development-goals/. 312 See on this UNEP, OECD and IISD, Measuring Fossil Fuel Subsidies in the Context of the Sustainable Development Goals, UN Environment, Nairobi, Kenya, 2019. 313 An illustration of an effort that goes in this direction is the recently proposed Price Approach, which tries to identify the net tax burden at the sectorial and jurisdiction-wide level, accounting for carbon taxes and ETS prices, specific energy taxes, subsidies that reduce end-user fuel prices, and other energy policies which raise prices. ODI and Vivid Economics, Estimating Effective Carbon Prices: Accounting for Fossil Fuel Subsidies, Report for the Carbon Pricing Leadership Coalition, 2019. 80 Annex I Exchange rates Table 4 / Currency conversion rates, as of April 1, 2019 Currency Symbol US$ equivalent Argentinian Peso ARS 0.0233 Australian Dollar A$ 0.7120 British Pound £ 1.3104 Canadian Dollar CAN$ 0.7497 Colombian Peso COP 0.0003 Chilean Peso CLP 0.0015 Chinese Yuan CNY 0.1489 Danish Krona DKR 0.1505 Euro € 1.1235 Icelandic Krona ISK 0.0081 Japanese Yen JPY 0.0090 Kazakhstan Tenge KZT 0.0026 Korean Won KRW 0.0008 Mexican Peso MXN 0.0520 New Zealand Dollar NZD 0.6822 Norwegian Krone NOK 0.1165 Polish Zloty PLZ 0.2613 Singapore Dollar S$ 0.7387 South African Rand R 0.0704 Swedish Krona SEK 0.1080 Swiss Franc CHF 1.0048 Ukrainian Hryvnia UAH 0.0368 81 Annex II Detailed overview of carbon pricing initiatives in the Canadian provinces and territories Jurisdiction Type and status Coverage Revenue use Exemptions Alberta ETS and carbon 90% (own Use of carbon pricing revenues include: Exemptions and/or competitiveness tax implemented initiatives) measures include: −− Mitigation and adaptation projects Federal −− Carbon tax: various exemptions as −− Rebates to low- and middle-income benchmark met rebates including gasoline and diesel households, which account for about used in the farming sector, fuel sold 60% of the Alberta households for export, fuels used as feedstock, and (CAN$300/US$337 first adult, fuels used by CCIR facilities315 CAN$150/US$169 second adult, CAN$45/US$51 each child, full rebate −− CCIR: covered facilities only face for individuals and families with compliance costs for the emissions income below certain treshold for above their baseline and facilities 2019)314 experiencing economic challenges due to the compliance costs can receive support from the Compliance Cost Containment Program316 −− From November 2018, oil and gas producers are exempted from paying the carbon tax until 2023 for fuel used their production. The amendment to the Regulation was made retroactive to January 1, 2017.317 The rebate comes as a response to competitive pressure on the oil and gas industry in Alberta.318 British ETS and carbon 70% (own Use of carbon pricing revenues include:319 Exemptions and/or competitiveness Columbia tax implemented initiatives) measures include: −− Tax credits for households to protect Federal affordability (CAN$135/US$152 per −− Carbon tax: various exemptions as benchmark met adult, CAN$40/US$45 per child for rebates including exported fuels, fuel 2018)320 consumption by aviation and shipping travelling outside British Columbia, and −− The CleanBC Program for Industry, colored gasoline and colored diesel which provides an industrial incentive purchased by farmers.321 to reduce carbon tax costs for industrial operations meeting world −− GGIRCA: covered facilities only face leading emissions benchmarks, and compliance costs under the GGIRCA for a clean industry fund that invests the emissions above their baseline, but a portion of industrial carbon tax must pay revenue neutral carbon tax revenues into emissions reduction for their full CO2 emissions. Covered projects. According to the Provincial facilities are eligible for the CleanBC Inventory, the covered facilities which Program for Industry to reduce carbon qualify for the CleanBC Program for tax costs. Industry account for about 28% of the carbon-taxable emissions. 314 Source: Ibid. 315 Source: Ibid. 316 Source: Government of Alberta, Carbon Competitiveness Incentive Regulation, accessed March 5, 2019, https://www.alberta.ca/carbon-competitiveness-incentive-regulation.aspx. 317 Source: Government of Alberta, Tax and Revenue Administration Special Notices, February 12, 2019, https://open.alberta.ca/publications/climate-leadership-act-special- notice-vol-11-no-13-mobile-service-rigs-rebate-carbon-levy-clear-fuel#detailed. 318 Source: Calgary Herald, Premier Rachel Notley Unveils Carbon Tax Break for Drilling Companies, November 22, 2018, https://calgaryherald.com/business/energy/premier- rachel-notley-unveils-carbon-tax-break-for-drilling-companies. 82 Jurisdiction Type and status Coverage Revenue use Exemptions Manitoba Federal backstop 56% (federal Carbon pricing revenues from the No additional exemptions and/or system fully backstop)322 federal backstop system are returned to competitiveness measures to the federal imposed the province’s population as described backstop system have been introduced for above and do not go to the provincial the province. government. Tax returns to individuals (CAN$170/US$191 single/first adult; CAN$85/US$96 for second adult in couple or first child for single parents; CAN$42/US$47 per child other than first for single parent in 2019) 323 New Federal backstop 91% (federal Carbon pricing revenues from the No additional exemptions and/or Brunswick system fully backstop)324 federal backstop system are returned to competitiveness measures to the federal imposed the province’s population as described backstop system have been introduced for above and do not go to the provincial the province. government. Tax returns to individuals (CAN$128/US$144 single/first adult; CAN$64/US$72 for second adult in couple or first child for single parents; CAN$32/US$36 per child other than first for single parent in 2019) 325 Newfound­ ETS and carbon 91% (own Use of carbon pricing revenues include:326 Exemptions and/or competitiveness land and tax implemented initiatives) measures include:327 −− General budget Labrador Federal −− GHG reduction project −− Carbon tax: various exemptions including benchmark met home heating fuels, gasoline for electricity generation, farming, forestry, fishing, equipment manufacturing, and mineral exploration, fuels as feedstock, and fuels used by PSS facilities. −− To minimize the impact on consumers, taxes on gasoline and diesel were reduced.328 −− PSS: covered facilities only face compliance costs under the PSS for the emissions above their baseline, with exemptions for methane emissions from venting and fugitives in the oil and gas sector Northwest Carbon tax under 79% (own Use of carbon pricing revenues include:330 Exemptions and/or competitiveness Territories consideration329 initiative) measures include:332 −− Energy projects that will reduce GHG Federal emissions as part of the 2030 NWT −− Exemption of aviation fuel, 75 percent benchmark met Energy Plan rebate to large industrial emitters for tax paid on non-motive diesel and heating −− GHG reduction projects as identified fuel in the NWT Climate Change Strategic Framework −− 100 percent rebate on heating fuel for most residents, businesses (non-large −− Enhanced benefit programs to industrial emitters) and governments offset the impact of carbon pricing on the cost of living of NWT families −− Rebate of carbon tax paid on non- (CAN$260/US$292 annually for motive diesel purchased for generating resident adult; CAN$300/US$337 per electricity for distribution child, when the system will be fully implemented).331 319 Source: Government of British Columbia, British Columbia’s Carbon Tax, April 11, 2019, https://www2.gov.bc.ca/gov/content/environment/climate-change/planning-and- action/carbon-tax. 320 Source: Government of British Columbia, Carbon Tax Programs, accessed April 11, 2019, https://www2.gov.bc.ca/gov/content/environment/climate-change/planning-and- action/carbon-tax/programs. 321 Source: Government of British Columbia, Motor Fuel Tax & Carbon Tax Exemptions, accessed April 11, 2019, https://www2.gov.bc.ca/gov/content/taxes/sales-taxes/motor- fuel-carbon-tax/business/exemptions. 322 Source: Dobson et al., The Greenhouse Gas Emissions Coverage of Carbon Pricing Instruments for Canadian Provinces, SSP Research Paper, February 2019. 323 Source: Government of Canada, Manitoba and Pollution Pricing, accessed February 21, 2019, https://www.canada.ca/en/environment-climate-change/services/climate- change/pricing-pollution-how-it-will-work/manitoba.html. Annex II 83 Jurisdiction Type and status Coverage Revenue use Exemptions Nova Scotia ETS implemented 80% (own Use of carbon pricing revenues include:333 Exemptions and/or competitiveness initiative) measures include:334 Federal −− A broad range of measures that help benchmark met reduce GHG emissions, mitigate social −− Free distribution of some of the and economic impacts, or adapt to the allowances each year. Auctioning of impacts of climate change. allowances will start in 2020 −− Governance and administration of the −− Industrial facilities receive free funds will be established in 2019. allowances according to historical emission intensities, actual production volumes, a general cap adjustment factor and a sector-specific assistance factor −− Electricity importers (except Nova Scotia Power) and fuel suppliers receive 80% of their reported emissions as free allowances −− The largest utility in the province, Nova Scotia Power Inc, receives a set amount of free allowances that were based on 90% of its buisness as usual emission projections Nunavut Federal backstop 77% (federal The territorial government is still Exemptions and/or competitiveness system opt-in backstop)335 considering how best to return the measures include:337 carbon pricing revenues to its citizens −− In addition to federal exemptions, and businesses, aiming to minimize additional relief for fuels used for the effect of federal carbon pricing on aviation in the territory and diesel- the cost of living and doing business in fired electricity generation for remote Nunavut.336 communities Ontario ETS under 82% (federal Carbon pricing revenues from the No additional exemptions and/or consideration backstop)338 federal backstop system are returned to competitiveness measures to the federal the province’s population as described backstop system have been introduced Federal backstop above and do not go to the provincial for the province. system fully government. imposed Tax returns to individuals (CAN$154/US$173 single/first adult; CAN$77/US$86 for second adult in couple or first child for single parents; CAN$38/US$43 per child other than first for single parent in 2019) 339 324 Source: Dobson et al., The Greenhouse Gas Emissions Coverage of Carbon Pricing Instruments for Canadian Provinces, SSP Research Paper, February 2019. 325 Source: Government of Canada, New Brunswick and Pollution Pricing, February 21, 2019, https://www.canada.ca/en/environment-climate-change/services/climate-change/ pricing-pollution-how-it-will-work/new-brunswick.html. 326 Source: Ibid. 327 Source: Ibid. 328 Source: Government of Newfoundland and Labrador, Provincial Government Releases Federally-Approved Made-in-Newfoundland and Labrador Approach to Carbon Pricing, October 23, 2018, https://www.releases.gov.nl.ca/releases/2018/mae/1023n01.aspx. 329 The NWT carbon tax is to be introduced by July 1, 2019 pending passage of Bill 42 “An Act to Amend the Petroleum Products Tax Act”. As of April 1, 2019— the cut-off date of this report—Bill 42 has not been adopted yet. The NWT carbon tax will be considered “scheduled for implementation” once it has been formally adopted through legislation. Any upcoming developments regarding the status of the NWT carbon tax will be included in the next edition of the State and Trends of Carbon Pricing report and the Carbon Pricing Dashboard. 330 Source: Government of Northwest Territories, Implementing Carbon Pricing in the NWT - Investing in Green Initiatives, accessed March 19, 2019, https://www.fin.gov.nt.ca/en/ carbon-pricing. 331 Source: Government of Northwest Territories, Implementing Carbon Pricing in the NWT, accessed April 11, 2019, https://www.fin.gov.nt.ca/en/carbon-pricing. 332 Source: Ibid. 333 Source: Ibid. 334 Source: Ibid. 335 Authors' calculation based on Environment Canada, National Inventory Report 1990-2017: Greenhouse Gas Sources and Sinks in Canada, 2019. 336 Source: Government of Nunavut, Budget Address 2019, February 20, 2019, https://www.gov.nu.ca/sites/default/files/2019-20_budget_address_2019-english.pdf. 337 Source: Government of Canada, Nunavut and Pollution Pricing, November 23, 2018, https://www.canada.ca/en/environment-climate-change/services/climate-change/ pricing-pollution-how-it-will-work/nunavut.html. 338 Source: Dobson et al., The Greenhouse Gas Emissions Coverage of Carbon Pricing Instruments for Canadian Provinces, SSP Research Paper, February 2019. 339 Source: Government of Canada, Ontario and Pollution Pricing, February 21, 2019, https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing- pollution-how-it-will-work/ontario.html. 84 Jurisdiction Type and status Coverage Revenue use Exemptions Prince Edward Carbon tax 65% (own Use of carbon pricing revenues include:341 Exemptions and/or competitiveness Island implemented initiative) measures include:342 −− All revenues on gasoline and diesel Federal OBPS 3% (federal are returned to its citizens to partly −− Various exemptions including fuel used only opt-in backstop)340 incentivize low emission activities by farmers, fishers, aquaculturists, through public transport grants, free international aviation and shipping, and vehicle registration for electric and fuels used by facilities under the federal plug-in hybrid vehicles, a reduction OBPS of registration fees for other vehicles, −− Furnace oil used for heating and and free driver’s licenses propane are exempt, subject to a review in 2020343 No additional exemptions and/or competitiveness measures to the federal OBPS have been introduced for the province. Québec ETS implemented 85% (own Use of carbon pricing revenues include:344 Exemptions and/or competitiveness initiative) measures include:345 Federal −− Energy efficiency measures for benchmark met buildings, industrial processes and −− Industrial facilities that are considered vehicle fleets emissions-intensive and trade exposed receive free allowances through −− Support for the development of mass benchmarks based on input of material and active transit or output of products, production levels, −− Electrification of transport and an increasingly stringent GHG emission intensity target that varies per −− Support of renewable energy sources activity. in all activity sectors −− Free allowances are allocated also to −− Research and development in the field voluntary emitters, i.e. entities that of clean technology voluntarily participate in the scheme. Intensity targets and production levels for free allocation are increasingly stringent over time. Saskatchewan ETS implemented 12% Contribution to a provincial technology No additional exemptions and/or (Saskatchewan fund is one of several compliance competitiveness measures to the federal Federal backstop OBPS) mechanisms in Saskatchewan’s backstop system have been introduced for system partially OBPS program. Funds within the the province. imposed 51% (federal technology fund will be used to invest in backstop)346 transformative industrial innovation that will lower greenhouse gas emissions. Carbon pricing revenues from the federal backstop system are returned to the province’s population as described above and do not go to the provincial government. Tax returns to individuals (CAN$305/ US$229 single/first adult; CAN$152/ US$114 for second adult in couple or first child for single parents; CAN$76/ US$57 per child other than first for single parent in 2019)347 340 Source: Dobson et al., The Greenhouse Gas Emissions Coverage of Carbon Pricing Instruments for Canadian Provinces, SSP Research Paper, February 2019. 341 Source: Government of Nova Scotia, Nova Scotia’s Cap and Trade Program - Regulatory Framework, October 2018, https://climatechange.novascotia.ca/sites/default/files/ Nova-Scotia-Cap-and-Trade-Regulatory-Framework.pdf. 342 Source: Government of Prince Edward Islands, Carbon Levy Exemptions, November 8, 2018, https://www.princeedwardisland.ca/en/information/finance/carbon-levy- exemptions. 343 Source: Government of Prince Edward Islands, Carbon Levy Rates, November 8, 2018, https://www.princeedwardisland.ca/en/information/finance/carbon-levy-rates. 344 Source: Government of Québec, 2013-2020 Climate Change Action Plan, accessed April 11, 2019, http://www.environnement.gouv.qc.ca/changementsclimatiques/plan- action-fonds-vert-en.asp. 345 Source: ICAP, Canada - Québec Cap-and-Trade System, April 9, 2019, https://icapcarbonaction.com/en/?option=com_ etsmap&task=export&format=pdf&layout=list&systems[]=73. 346 Source: Dobson et al., The Greenhouse Gas Emissions Coverage of Carbon Pricing Instruments for Canadian Provinces, SSP Research Paper, February 2019. 347 Source: Government of Canada, Saskatchewan and Pollution Pricing, 21 2019, https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing- pollution-how-it-will-work/saskatchewan.html. Annex II 85 Jurisdiction Type and status Coverage Revenue use Exemptions Yukon Federal backstop 95% (federal Use of carbon pricing revenues include:349 Exemptions and/or competitiveness system opt-in backstop)348 measures include:351 −− Rebates to households (CAN$43/US$48 per person)350 with −− In addition to federal exemptions, a supplement for individuals who live additional relief for fuels used for outside of an urban area aviation in the territory and diesel- fired electricity generation for remote −− Tax credits to businesses with communities additional credits for businesses who invest in clean energy generation and equipment 348 Authors' calculation based on Government of Yukon, Greenhouse gas emissions in Yukon, 2018. 349 Source: Government of Canada, Saskatchewan and Pollution Pricing, 21 2019, https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing- pollution-how-it-will-work/saskatchewan.html. 350 Source: Government of Yukon, Proposed Framework for the Yukon Government Carbon Price Rebate, January 2019, https://yukon.ca/sites/yukon.ca/files/fin/proposed_ framework_ygcpr_17_jan_2019.pdf. 351 Source: Government of Canada, Nunavut and Pollution Pricing, November 23, 2018, https://www.canada.ca/en/environment-climate-change/services/climate-change/ pricing-pollution-how-it-will-work/nunavut.html. 86 Annex III NDC table Table 5 shows the main unconditional and conditional of carbon pricing/market mechanisms are possible, targets in the NDC of each Party, whether the NDC because this information is not always presented in states that the Party is planning or considering the a clear and consistent manner in NDCs. The mention use of carbon pricing, and whether carbon pricing will of carbon pricing in a domestic context may not be a domestic or international initiative. Only NDCs necessarily mean that a domestic carbon pricing that have been uploaded to the UNFCCC interim initiative is formally under consideration. Also, not all NDC Registry are listed below. For the purpose of this Parties that already have a carbon pricing initiative report, carbon pricing includes ETSs, carbon taxes and implemented, scheduled or under consideration other market mechanisms. The targets are based on have reported this in their NDC. The number of the UNFCCC interim NDC Registry and the World Bank Parties planning or considering the use of carbon Group NDC Platform. The authors recognize that the pricing in their NDC is therefore not comparable text in NDCs can be interpreted in different ways and with the jurisdictions with carbon pricing initiatives other assessments of the targets and the mention implemented, scheduled or under consideration. Table 5 / Unconditional and conditional targets and intended use of carbon pricing and/or market instruments stated in NDCs Mention of NDCs Unconditional target Conditional target carbon pricing Afghanistan – 13.6% below BAU by 2030 International Albania 11.5% below BAU by 2030 – International Algeria 7% below BAU levels by 2030 Additional 15% reduction is conditional No Andorra 37% below 1990 by 2030 – No 35% unconditional reduction below BAU by Angola Additional 15% is conditional No 2030 Antigua and NDC sets out a number of measures – International Barbuda Argentina shall not exceed a net emission Additional 19% reductions is conditional Argentina of 483 MtCO2eq by the year 2030. (18% International (see graph) reductions compared to BAU) Annex III 87 Mention of NDCs Unconditional target Conditional target carbon pricing Ensure total emissions of Armenia do not Armenia – exceed 663MTCO2 and 189 tonnes per person International by 2030 Australia 26-28% below 2005 levels by 2030 – No Azerbaijan 35% below 1990 levels by 2030 – No Bahamas, The 30% compared to BAU levels – International NDC sets out a number of sectoral measures, Bahrain – No without setting targets 5% unconditional reduction below BAU by Bangladesh Additional 15% is conditional International 2030 37% below BAU levels by 2025, and 44% below Barbados – International BAU levels by 2030 Belarus 28% below 1990 levels by 2030 – No Belize NDC sets out a number of sectoral measures NDC sets out a number of sectoral measures International NDC sets out unconditional targets per sector: NDC sets out conditional targets per sector: Benin 3.63% overall; energy: 1.98%; agriculture 5.8% 12.55% overall; energy: 9.53%; agriculture No and LULUCF 23.4% 25.3% and LULUCF 76.6% Bhutan intends to remain carbon neutral Bhutan whereby GHG emissions will not exceed – No sequestration by its forests Bolivia NDC sets out development goals – No Bosnia and 2% below BAU (corresponding to +18% over Additional 21% is conditional International Herzegovina 1990 levels) unconditional target Botswana 15% reduction below 2010 levels by 2030 – International 37% below 2005 by 2025, 43% by 2030 Brazil – International (indicative) Brunei Darussalam NDC sets out 3 sectoral targets – No Unconditional target of 6.6% below BAU by Burkina Faso Additional 5% is conditional International 2030 Unconditional target of 3% compared to BAU Burundi Additional 17% is conditional No levels by 2030 With international support, 100% renewable Cabo Verde 30% renewable energy target by 2025. energy by 2025. Overall GHG reductions will be International calculated and submitted in 2016. Cambodia – 27% below 2010 levels by 2030 International Cameroon 32% below 2010 levels by 2035 – International 30% below 2005 levels by 2030 (unchanged International and Canada – from NDC) domestic 88 Mention of NDCs Unconditional target Conditional target carbon pricing Central African 5% below BAU by 2030 – International Republic Unconditional target of 18.2% below 2010 Chad Additional 52.8% is conditional International levels 30% unconditional emission intensity Chile Additional 35-45% is conditional International reduction by 2030 China 60-65% carbon intensity reduction by 2030 – Domestic Additional 10% is subject to international Colombia 20% below BAU by 2030 International support Comores 84% below BAU by 2030 – No Congo, Democratic 17% below 2000 levels by 2030 – No Republic of Congo, Republic of – 48% below BAU levels by 2025, 55% by 2030 No Unconditional target of 38% below 2006 levels Conditional 81% reduction below 2006 by 2030 Cook Islands No by 2020 in the electricity generation sector in the electricity generation sector 44% reduction compared to BAU levels by 2030, and a 25% reduction compared to 2012 International and Costa Rica – levels. Costa Rica is committed to becoming a domestic carbon neutral country by 2021. Cuba NDC sets out a number of sectoral actions – No Djibouti 40% below 2010 levels by 2030 Additional 20% is conditional No 39.2% below BAU levels by 2025, and 44.7% Dominica – International below BAU levels by 2030 Dominican – 25% below 2010 levels by 2030 International Republic Unconditional energy sector target of 20.4 to Conditional target in the energy sector of 37.5 Ecuador – 25% below BAU levels by 2030. to 45.8% below BAU levels by 2030. International and Egypt – NDC sets out a number of sectoral measures domestic El Salvador NDC sets out a number of sectoral measures – No Equatorial Guinea 20% below 2010 levels by 2030 – International Eritrea 39.2% unconditionally below BAU by 2030 Additional 41.6% is conditional Ethiopia – 64% by 2030 compared to BAU projections International European Union 40% below 1990 levels by 2030 – No Reduction of emissions from the energy sector Fiji – International by 30% below BAU by 2030 Annex III 89 Mention of NDCs Unconditional target Conditional target carbon pricing At least 50% by 2025 compared to reference Gabon – Domestic scenario 44.4% in 2025 and 45.4% in 2030-both below Gambia, The – International 2010 levels 15% unconditional emissions reduction below Georgia Additional 10% is conditional No BAU by 2030 15% unconditional reduction below BAU by Ghana Additional 30% is conditional International 2030 30% reduction by 2025, with an indicative Grenada – International reduction of 40% by 2030 Guatemala 11.2% unconditional below BAU by 2030 Additional 11.4% is conditional International Guinea – 13% reduction below BAU by 2030 International According to 2006 data, Guinea-Bissau is an absolute sink for greenhouse gases and as Guinea-Bissau – such has not put forward a GHG reduction International target. It will however, implement new policies to combat deforestation in the country. Guyana 52MtC02e reduction by 2025 – International Unconditional target of 5% below BAU levels Haiti Additional 21% is conditional International by 2030 Honduras 15% below BAU by 2030 – No Iceland 40% below 1990 levels by 2030 – Domestic 33 to 35% carbon intensity reduction over India – International 2005 levels by 2030 Indonesia 29% below BAU by 2030 Additional 12% is conditional International Iran, Islamic Unconditional reduction of 4% below BAU by Additional 8% is conditional No Republic of 2030 Iraq 1% reduction below BAU by 2035 Additional 13% is conditional No Israel 26% below 2005 levels by 2030 – No Ivory Coast 28% below BAU by 2030 – International 7.8% unconditional reduction below BAU by Jamaica Additional 2.2% is conditional No 2030 26% by 2030 (equivalent to 25.4% reduction Japan – International compared to 2005) Jordan 1.5% below BAU by 2030 Additional 12.5% is conditional International Conditional target of a 15% reduction below Kazakhstan Additional 10% is conditional International 1990 levels by 2030 90 Mention of NDCs Unconditional target Conditional target carbon pricing Kenya – 30% below BAU by 2030 International Kiribati 12.8% by 2030 below BAU Additional 49% is conditional International Korea, Democratic Unconditional 8% reduction below BAU by People's Republic An additional 32.25% reductions conditional No 2030 of International and Korea, Republic of 37% below BAU by 2030 – domestic Kuwait NDC sets out a number of measures – No Additionally, with international support Kyrgyz Republic 11.49 to 13.75% below BAU levels by 2030 It could reduce emissions by 35.06 - 36.75% No below BAU in 2050 Lao People’s Democratic NDC sets out a number of sectoral measures – International Republic Unconditional target of 15% compared to BAU Lebanon Additional 15% is conditional No levels by 2030 Unconditional target of 10% compared to BAU Lesotho Additional 25% is conditional International levels by 2030 Liberia – 15% below BAU levels by 2030 International Liechtenstein 40% below 1990 levels by 2030 – No 14% below BAU by 2030 reduction is Madagascar – No conditional Malawi NDC sets out a number of sectoral measures NDC sets out a number of sectoral measures No Reduce GDP emissions intensity by 35% by Malaysia Additional 10% is conditional No 2030 compared to 2005 levels Unconditional target of 10% below BAU by Maldives Additional 14% is conditional No 2030 29% reduction below BAU for agriculture, 31% Mali – for energy and 21% for forests and changes in International land use 32% GHG reduction by 2025 compared to 2010 Marshall Islands levels; 45% reduction by 2030 compared to 58% reduction by 2035; net-zero by 2050 No 2010 levels Mauritania 22.3% below BAU by 2030 Additional 65.7% is conditional No Mauritius – 30% below BAU by 2030 No Additional 15% is subject to a global 25% below BAU by 2030 (22% of GHG and a agreement addressing important topics such Mexico International reduction of 51% of Black Carbon). as carbon pricing, technical cooperation and access to financial resources and technology. Annex III 91 Mention of NDCs Unconditional target Conditional target carbon pricing Micronesia, Unconditional reduction of 28% below 2000 Additional 7% is conditional No Federated States of levels by 2025 Moldova 64-67% reduction below 1990 levels by 2030 Additional 11-14% is conditional International Monaco 50% below 1990 levels by 2030 – International Mongolia – 14% below BAU by 2030 International Montenegro 30% below 1990 levels by 2030 – International 17 % reduction by 2030 compared to BAU, Additional 25% reduction (21% without AFOLU) Morocco with 4% coming from AFOLU actions. Without International is conditional AFOLU actions, the reduction target is 13%. Mozambique – Reduction of 76.5 MTCO2e by 2030 International Myanmar NDC sets out a number of sectoral measures – No 79% reduction compared to BAU levels by Namibia Additional 10% is conditional International 2030 NDC sets out a number of measures in the Nauru – No energy sector Nepal – NDC sets out sectoral targets International New Zealand 30% below 2005 levels by 2030 – International Continue the increase of renewables to 60% by 2030 Increase the national carbon sink by 20% Nicaragua compared to the business-as-usual scenario International Maintaining the countries' carbon sink at by 2030 current levels Unconditional target of 2.5% below 2020 BAU Additional 22.5 by 2020 and 31.1% by 2030 is Niger levels by 2020 and 3.5% below 2030 levels by International conditional 2030 20% unconditional reduction below BAU by Nigeria Additional 25% is conditional International 2030 NDC sets out a number of measures in the Niue – No energy sector 30% reduction of CO2 emissions from fossil Additional 6% is conditional on higher level of North Macedonia International fuel combustion below BAU by 2030 ambition Norway At least 40% below 1990 levels by 2030 – Domestic Oman – 2% below BAU by 2030 Pakistan NDC does not set out any specific target – No 22% energy sector emissions reductions below Palau – No 2005 levels by 2025 10% increase of absorption capacity of forests Additional 70% absorption capacity is International and Panama by 2050 compared to 2015 conditional domestic 92 Mention of NDCs Unconditional target Conditional target carbon pricing Papua New Guinea Carbon Neutrality by 2030 – No 10% unconditional reduction below BAU by Paraguay Additional 10% is conditional International 2030 Unconditional target of 20% below BAU by Peru Additional 10% is conditional International 2030 Philippines – 70% below BAU by 2030 NDC sets out a number of sectoral measures, Qatar – No without setting targets Russian Federation 25-30% below 1990 levels by 2030 – Rwanda Estimation of emissions reduction is underway – International Samoa is committed to 100% renewable energy generation by 2017 and maintaining Samoa this to 2025. Samoa will make an economy- – International wide emission reduction target with international assistance. San Marino 20% below 2005 levels by 2030 – International São Tomé and – 24% reduction below 2005 levels by 2030 International Príncipe NDC seeks to achieve mitigation ambitions of Saudi Arabia up to 130 million tons of CO2e avoided by 2030 – No annually 5% unconditional reduction below BAU by Senegal Additional 16% is conditional No 2030 Serbia 9.8% below 1990 levels by 2030 – No Seychelles – 21.4% in 2025 and 29% in 2030 below BAU No Emissions will not exceed 7.58 MtCO2e in 2035 Sierra Leone – International and carbon neutrality by 2050 Singapore 36% carbon intensity reduction by 2030 – International Unconditional targets of 12% below 2015 Solomon Islands levels by 2025 and 30% below 2015 levels by Additional 15% by 2030 is conditional International 2030 Somalia NDC sets out a number of sectoral measures – No SA’s commitment takes the form of a peak, plateau and decline GHG emissions trajectory South Africa range. SA's emissions will peak between 2020 – Domestic and 2025, plateau for approximately a decade and decline in absolute terms thereafter. South Sudan NDC sets out a number of sectoral measures – No Annex III 93 Mention of NDCs Unconditional target Conditional target carbon pricing 4% unconditional reduction below BAU in Additional 16% conditional reductions in Sri Lanka energy sector, 3% unconditional reduction in energy sector and 7% conditional in other No other sectors sectors St. Kitts and Nevis – 35% GHG reduction below BAU by 2030 International International and St. Lucia – 23% conditional reduction below BAU by 2030 domestic St. Vincent and the 22% below BAU by 2025 – International Grenadines Sudan – NDC sets out a number of sectoral measures International NDC sets out a number of sectoral measures; Suriname Install renewable energy and protect coastal – International mangrove forests. Swaziland – NDC sets out a number of sectoral measures International Switzerland 50% below 1990 levels by 2030 – International Syrian Arab – – No Republic Unconditional target of 10-20% reduction of Tajikistan Additional 5-15% is conditional No 1990 levels by 2030 Tanzania – 10-20% below BAU emissions by 2030 No Thailand 20% unconditional below BAU by 2030 Additional 5% is conditional International No emissions targets, instead outlines Timor-Leste – No activities to be undertaken in various sectors Togo 11.14% unconditional below BAU by 2030 Additional 20% is conditional International Tonga NDC sets out a number of sectoral targets – No Trinidad and 15% below BAU by 2030 (conditional on International and – Tobago international financing) domestic 13% unconditional carbon intensity reduction Tunisia Additional 28% is conditional International by 2030 Turkey 21% below BAU levels by 2030 – No Stabilization of greenhouse gas emissions by Turkmenistan – No 2030 60% emissions reduction below 2010 levels by Further reductions conditional upon the Tuvalu No 2025 necessary technology and finance Uganda – 22% below BAU by 2030 International Ukraine will not exceed 60% of 1990 emission Ukraine – International levels by 2030. 94 Mention of NDCs Unconditional target Conditional target carbon pricing United Arab NDC sets out a number of sectoral measures, – No Emirates including a clean energy target of 24% by 2021 United States 26-28% below 2005 levels by 2025 – No Uruguay's first NDC specifies unconditional Uruguay's first NDC specifies conditional targets for GHG intensity (subdivided into targets for GHG intensity (subdivided into targets for CO2 [-24%], CH4 [-57%] and N2O targets for CO2 [-29%], CH4 [-59%] and N2O [-48%]), GHG emission intensity of beef [-52%]), GHG emission intensity of beef production (subdivided into targets for CH4 production (subdivided into targets for CH4 Uruguay [-32%] and N2O [-34%]) and the LULUCF [-37%] and N2O [-38%]) and the LULUCF sector International sector (CO2 only, but subdivided by land-use (CO2 only, but subdivided by land-use category: category: 100% maintenance of living biomass 5% and 25% increases in native forest area on forest lands and avoiding CO2 emissions and shade and shelter forest, respectively, and from 10% of grassland, 50% of peatland and avoiding CO2 emissions from 30% of grassland 75% of cropland) and 100% of peatland) 10% GHG intensity reduction from 2010 levels Uzbekistan – No by 2030 100% reduction for the power sector by 2030, Vanuatu – No 30% reduction for the energy sector as a whole Venezuela, República 20% GHG reduction below BAU by 2030 – No Bolivariana de Unconditional target of 8% compared to BAU Additional 17% subject to access to Vietnam International levels by 2030 international cooperation and mechanisms West Bank and NDC sets out a number of sectoral measures 24.4% below BAU by 2040 International Gaza 1% unconditional reduction below BAU by Yemen, Republic of Additional 13% is conditional No 2030 Unconditional target of 25% compared to BAU Zambia Additional 22% is conditional International levels by 2030 33% reduction in carbon intensity below BAU Zimbabwe – International levels by 2030 1818 H Street, NW Washington, DC 20433 USA www.worldbank.org