On 18 September 2018 the OECD issued the publication Effective Carbon Rates 2018: Pricing Carbon Emissions through Taxes and Emissions Trading. The report presents date on taxes and tradeable permits for carbon emissions in 42 countries from the OECD and G20 representing around 80% of global emissions.

The report concludes that governments must raise their carbon prices much faster to meet commitments on reducing emissions. Carbon prices are rising slowly but are not having a significant impact on climate change. More action is required to provide an incentive for companies to innovate and bring about a low carbon economy and to encourage households to prefer low carbon lifestyles.

Carbon prices are measured using the Effective Carbon Rate. This is the sum of three components: specific taxes on fossil fuels, carbon taxes and prices of tradeable emission permits. These three instruments increase the price of high-carbon relative to low- and zero-carbon fuels, thereby encouraging users to choose low- or zero-carbon options.

The report indicates that emission trading is an effective way of pricing carbon emissions if permit prices are at realistically high levels. Carbon taxes on the other hand are simple to administer especially if they are added to existing tax schemes. Carbon pricing can facilitate domestic revenue mobilisation or revenue-neutral reforms can be introduced with scope for reducing other taxes.

Taxes are the largest component of the effective carbon rate in most industrial sectors. More than 93% of the total carbon price signal relates to taxes in sectors such as agriculture and fisheries, roads and offroad transport and the residential and commercial sector. Permit prices from emission trading systems also contribute significantly to effective carbon rates in industry but across all the 42 countries 62% of the effective carbon rate results from taxes.