Does CO2 emission taxation reduce global warming

Signed by almost 200 countries in 2016, the Paris Agreement aims to limit global warming to well below 2°C through a concerted effort to reduce
emissions, reaching carbon emission neutrality by 2050. Global taxation of carbon dioxide emissions increased by 182% between 2016 and 2019,
jumping from $16.9 bn to $47.8 bn. Carbon dioxide emissions, however, have still risen at an annual average of 1% over the past decade.
2 emission
Published in the dossier of December 2020

Map of explicit carbon prices around the world in 2020

Map of explicit carbon prices around the world in 2020

The 2017 report of the High-Level Commission on Carbon Prices co-chaired by Joseph Stiglitz and Nicholas Stern established that, in order to achieve the Paris Agreement climate goals, all countries need to fix a price of $40 to $80 by 2020 permetric ton of carbon dioxide emitted and $50 to $100 by 2030. The map above shows that only a small number of countries have reached the 2020 target.

Carbon taxation covers 60% of global GDP

In 2020, 44 countries and 31 territories representing 60% of global GDP and 43% of total CO2 output are taxing carbon emissions, either through direct taxation (carbon tax), a quota trading system (ETS), or the combination of both. The pricing per meter ton of CO2 range from under $1 to $123.

Carbon revenue proportions and resource allocation

 Carbon revenue proportions and resource allocation


79% of ETS global revenues ($17.52bn) come from the European Union program.

82.5% of ETS revenues ($18.376 bn) are earmarked for “green spending.”

63% of carbon tax revenues ($16.084 bn) are assigned to general budget.

Carbon emission reduction beyond economic slowdown

The only time when carbon dioxide emissions decreased in the past twenty years is during economic slowdowns, such as the 2008 financial crisis or this year’s COVID-19-related restrictions: global CO2 emissions decreased by 8.8% (−1,551 Mt CO2-eq) in the first half of 2020 compared to the same period in 2019. Pricing carbon emissions has yet to prove its efficiency, notably by financing significant decarbonization programs, such as replacing fossil fuels used in transport with renewable energies.

Higher carbon prices, better allocation of resources

Carbon taxation also encourages alternative energy by making it cost-competitive with cheaper fuels. As shown, a significant number of countries do not participate, or only very modestly, in global carbon emission pricing efforts. Taxes need to increase to higher levels, in more countries, and to cover wider tax bases. Some sectors or industries are not covered by their country’s carbon emission taxation schemes, offsetting their transition to cleaner energies. Switzerland, for example, has one of the highest carbon taxes in the world ($98 per tCO2) but it covers only one third of the country’s emissions.
CO2 emission revenue use can be optimized. Earmarking fiscal resources toward specific projects (such as renewable energy production, decarbonized construction and transport) is more efficient than incorporating collected funds directly into national budgets. More targeted use of a larger-based carbon fiscal resource may lead to a sustainable reduction in CO2 emissions, encouraging cleaner energy use by making it cost-competitive with cheaper