IEACCC Podcasts IEA Clean Coal Centre

Carbon pricing is viewed by economists as the most cost-efficient method of reducing greenhouse gas emissions (GHGs), such as carbon dioxide (CO2). Several countries and sub-national jurisdictions have implemented carbon pricing policies since the 1990’s, to mixed results. The European Union Emissions Trading System (ETS) is the largest of these systems, beginning in 2005 and covering 4,323 MtC02e of emissions. Generally, it is agreed that emissions reductions do occur under a carbon price; however, questions remain about the strength of the causal link to this outcome and whether the results are enough to meet climate goals. Furthermore, the impact on coal power has been varied and often unpredictable. The economics of carbon pricing suggest that power producers will move away from coal as it is penalized for higher levels of emissions. However, this switch has not happened uniformly. Some countries have seen an increase in the use of natural gas over coal, while others have still maintained coal power as a primary energy source. Other government policies can also interact with carbon prices, changing the fuel mix in different ways. Finally, carbon pricing is supposed to spur investment in low-carbon technology, such as carbon capture and storage (CCS), but there may be less of an effect as originally predicted. Revenue from carbon prices could be used to support such initiatives.