CICERO - Senter for klimaforskning

Distributions of carbon pricing on extraction, combustion and consumption of fossil fuels in the global supply-chain

Jonas Karstensen, Glen Peters

Pricing carbon is one of the most important tools to reduce emissions and mitigate climate change. Already, about 40 nations have implemented explicit or implicit carbon prices, and a carbon price was explicitly stated as a mitigation strategy by many nations in their emission pledges submitted to the Paris Agreement. The coverage of carbon prices varies significantly between nations though, often only covering a subset of sectors in the economy. We investigate the propagation of carbon prices along the global supply-chain when the carbon price is applied at the point where carbon is removed from the ground (extraction), is combusted (production), or where goods and services are consumed (consumption). We consider both the regional and sectoral effects, and compare the carbon price income and costs relative to economic output. We find that implementation using different accounting systems makes a significant difference to revenues and increased expenditure, and that domestic and global trade plays a significant role in spreading the carbon price between sectors and countries. A few single sectors experience the largest relative price increases (especially electricity and transport), but most of the carbon price is ultimately paid by households for goods and services due to the large expenditure and indirect supply chain impacts. We finally show that a global carbon price will generate a larger share of revenue relative to GDP in non-OECD nations than OECD nations, independent on the point of implementation.

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