Carbon pricing design: Effectiveness, efficiency and feasibility
An investment perspective
Carbon pricing helps countries steer their economies towards and along a carbon-neutral
growth path. This paper considers how the design of carbon pricing instruments affects
their effectiveness, efficiency and feasibility. Design choices matter both for taxes
and Emissions Trading Systems (ETSs). Considering the role of carbon price stability
for clean investment, the paper shows how volatile carbon prices can cause risk-averse
investors to forego clean investment that they would have undertaken with more stable
prices. The paper then evaluates the effectiveness and efficiency of policy instruments
to stabilise carbon prices in ETSs, which tend to produce more volatile carbon prices
than taxes. The paper analyses the auction reserve price in California, the carbon
price support in the UK, and the market stability reserve in the EU ETS. Considering
feasibility, the paper discusses the tax (or emissions) base, how revenue use can
affect support from households and firms, and administrative choices.
Published on June 22, 2020
In series:OECD Taxation Working Papersview more titles