For many countries, a US$25 per tonne price on carbon would be enough to drive the emission reductions needed to meet global commitments. For Canada, however, even pricing carbon at US$75 per tonne would not be high enough to motivate sufficient cuts, says a new report from Moody’s Investors Service.
As policymakers step up their pledges to reduce carbon emissions, they are increasingly turning to carbon pricing as a way to meet these goals, the report said.
Yet, the adoption of pricing mechanisms has “so far has been low,” it said, “primarily reflecting the difficulty in achieving political consensus, given the costs for economies and sectors with high carbon intensity.”
The report noted that while carbon pricing policies may have negative implications in the short run, “the cost of inaction on controlling present-day emissions would accumulate with much greater social and economic costs in the future.”
As it stands, for the G20 economies overall, a price of US$25 per tonne of carbon emissions “would be more than sufficient to meet their Paris Agreement pledges” to reduce emissions by 2030, it noted.
However, for some economies, such as Canada and Australia, even with a price as high as US$75 per tonne, these countries “would fall short of their pledges,” it said.
The report noted that the economic cost of adopting carbon pricing will be more significant for more carbon-intensive countries and industries, such as transportation, mining and oil.
“Economies with carbon-intensive exports will bear a larger economic cost from carbon taxes implemented globally,” said Anushka Shah, vice-president and senior analyst at Moody’s, in a release.