9 October 2013: The Organisation for Economic Co-operation and Development (OECD) has released a policy paper, titled ‘Climate and carbon: Aligning prices and policies,’ which contains lessons learned from OECD analysis on carbon pricing and climate policies. The report recommends that governments gradually phase-out fossil fuel emissions and provide consistent signals to consumers, producers and investors.

The report is based on the recognition that the goal of limiting the average global temperature increase to 2ºC can only be achieved if all countries take on the responsibility to gradually phase out their emissions of carbon dioxide in the second half of this century. It stresses that the cost of carbon dioxide emissions will gradually increase, creating a strong economic incentive to shift towards a zero-carbon trajectory.

OECD argues that a key component of this approach is putting an explicit price on every ton of carbon dioxide emitted, but that explicit pricing instruments will need to be complemented by other policies that effectively put an implicit price on emissions.

The report outlines key issues for consideration, including: putting an explicit price on carbon; identifying other cost-effective policy instruments that put an implicit price on carbon; reviewing the broader fiscal policy to ensure that it is coherent with stated climate goals; ensuring that any regressive impacts of carbon pricing measures are alleviated through complementary measures and that a clear communication strategy is developed to explain them; and agreeing on climate pricing and policy measures today but plan for the long-term to achieve stated climate targets. [OECD Press Release] [Publication: Climate and Carbon: Aligning Prices and Policies]