Dive Brief:

• Two recently released reports — one from IHS Markit and one from the Organization for Economic Cooperation and Development (OECD) — indicate countries are using market-based solutions such as carbon pricing to incentivize greenhouse gas (GHG) emission reductions, but the rates are too low to allow cities to achieve the emission reduction goals in the Paris Agreement. 
• The OECD study discovered that countries' average level of carbon pricing will be about 76.5% lower than what its analysis indicates is needed to make an impact: 30 Euros (about $35 USD) per metric ton of CO2. The study says the pricing gap "is declining at a snail’s pace," having dropped from 79.5% in 2015 and 83% in 2012. At the current pace, the gap between carbon prices and real climate costs will not close until 2095. 
• The IHS Markit report indicates a carbon price of $40-$80 per metric ton of CO2 is needed to achieve Paris Agreement emissions reduction targets, and France is the only G20 country believed to have a carbon price within the necessary range. Both studies indicate countries need to drastically step up their efforts if they want to meet 2020 emissions targets.

Dive Insight:

The IHS Markit study examined actions by G20 countries, and the OECD study examined 42 G20 and OECD countries. Those 42 countries make up 80% of global GHG emissions.

Economists and climate advocates have promoted carbon taxes as the leading cost-effective way to combat climate change and more countries are adopting them. But these studies suggest that simply implementing carbon taxes is not enough; they must be set at the right levels to effectively achieve real change.

The studies also allude to carbon taxes not being enough to mitigate climate change on their own. For example, continued support of fossil fuels, considered leading carbon producers, is counterproductive to emissions reduction plans. The IHS Markit study notes G20 countries agreed to phase out fossil fuel subsidies nearly a decade ago, but as of last year, less than half of the G20 countries had made concrete moves to lower fossil fuel subsidies, and no country completely eliminated the subsidies.

"The current fiscal incentives are unlikely to be able to close this gap on their own," says the IHS Market report. "[T]he G20 will likely fail to meet emission reduction requirements laid out in national policies and the Paris Agreement unless strong command-and-control regulations are used to supplement these policies."