Global carbon pricing could pay for itself while cutting emissions by 12%, according to a new analysis by the World Economic Forum and PwC.
What would it take to decarbonise fast enough to avoid the worst effects of climate change?¹ One tool we can use to speed decarbonisation is carbon pricing. Many economists and businesspeople - including business leaders in high-emitting industries like cement and shipping² - support carbon pricing as a way to incentivise choices that reduce emissions. At PwC, we see the value of carbon pricing as an efficient, market-based lever to decrease emissions and level the playing field within sectors.
Carbon pricing is already used in various forms in more than 60 localised schemes across the world. But these schemes cover a limited percentage of carbon emissions, and their prices for a ton of carbon range widely, creating an uneven playing field. What if we could implement a coordinated, international carbon price floor instead?
“At PwC, we see the value of carbon pricing as an efficient, market-based lever to decrease emissions and level the playing field within sectors.”
The International Monetary Fund has proposed exactly this³. But how effectively would the proposed international carbon price floor reduce emissions? And what would be the economic impact? In collaboration with the World Economic Forum, we set out to answer these questions.
The results are intriguing:
Our analysis underlines the value of carbon pricing and provides perspective to concerns about its economic impact at a crucial moment for the world. We hope the report assists governments, business, and COP26 decision makers as they navigate a path towards a carbon free future.
¹ The PwC Net Zero Economy Index 2021 shows that the world is decarbonising at less than a fifth of the rate needed to avoid the worst effects of climate change.
² ‘Shippers want a carbon tax so everyone pays to go green,’ Bloomberg News Daily Tax Report, 1 October, 2021. ‘Cement makers pledge large cut in emissions by 2030.’ Guardian October 2021
³ The IMF has proposed a carbon price floor of $75 per ton of CO2 with lower rates of $50 and $25 for middle- and low-income countries, respectively. Countries could choose to implement this through a tax on emissions, a cap and trade system like in the EU, or equivalent measures.