Carbon Markets 94% Cheaper Than Renewable Support, OECD Says

Carbon markets are about 94 percent cheaper at cutting greenhouse gases than renewable subsidies paid to power producers, according to the Organization for Economic Cooperation and Development.

The cost of reducing one metric ton of carbon dioxide in the power industry using emissions trading systems is 10 euros ($13.56) on average, compared with 169 euros for feed-in tariffs, the OECD said today in a report. Some tariffs cost more than 700 euros a ton, the OECD in Paris said in the study based on data from 15 countries, including China and the U.S.

The OECD called on countries to assess the cost-effectiveness of climate-protection rules by taking an inventory of policies that price carbon directly, such as markets, and implicit systems including capital subsidies and feed-in tariffs. The group is making its recommendations as China, the biggest emitter, considers carbon markets and taxes.

“Subsidies wind up in the pockets of the rich,” Anthony Cox, head of the OECD’s climate division, said in an interview in London. “Direct prices, such as emissions trading systems and taxes, are often a more cost-effective way to cut carbon.”

Costly Policy

While most countries reviewed provide “relatively significant incentives” to reduce emissions from power generation, this may only apply to a small share of carbon dioxide output, according to the report. “A high implicit carbon price isn’t necessarily indicative of sound policy as it could merely stem from a policy that isn’t cost-effective.”

Carbon prices are necessary though governments sometimes need to offer additional support to encourage research and development in new technology, such as carbon capture and storage, Cox said.

Tax exemptions and fossil-fuel subsidies that undermine the transition toward zero-carbon solutions should be removed where possible, according to the OECD.

Failing to change emission-reduction policies will cost more than the billions of euros needed to wean consumers off fossil fuels, Angel Gurria, OECD’s secretary-general, said today at a press conference at the office of law firm Norton Rose Fulbright LLP in London.

“What we are describing here is a growth story,” he said. “Going down the high-carbon route will destroy growth.”

Countries used in the OECD research were Australia, Brazil, Chile, China, Denmark, Estonia, France, Germany, Japan, Korea, New Zealand, South Africa, Spain, the U.K. and the U.S.

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