On 8 September 2023 the Platform for Collaboration on Tax (PCT) issued a report on carbon pricing metrics. The PCT was set up for collaboration between the IMF, OECD, UN and the World Bank and supports countries in strengthening their tax systems by publishing toolkits and collaborating on important issues.

The recent increase in the use of carbon pricing instruments has been accompanied by the development of a range of carbon pricing metrics by the international organisations. These metrics have been developed to assess the current state and trends in carbon pricing and to measure progress against certain benchmarks. The metrics are designed to assist policymakers, businesses, and others to arrive at better informed decisions on carbon pricing.

The paper published by the PCT aims to facilitate comparison of the various metrics, showing how they may combine well or how they differ. The PCT describes how the various forms of carbon pricing relate to each other, for example directly or indirectly or in a positive or negative way. This can help decision makers to better assess the consequences combining two measures, such as removing fossil fuel subsidies at the same time as introducing carbon tax or fuel excise taxes.

The paper assists analysis of carbon pricing metrics by specifying what is measured (the coverage of a metric and the rate applied) and why it is measured (the purpose and practical use of the metric). This can help the comparison of metrics by identifying the general concepts behind different terminology used. This is useful because different government agencies may use different terminology to describe generally similar measures and internal government consultation can be assisted by identifying the general concepts underlying the terminology.

This type of analysis is used by the PCT in their paper to perform a comparative analysis of carbon pricing metrics. This indicates that the metrics currently in use are complementary; and highlights the usefulness of using both explicit and implicit (direct and indirect) metrics of carbon pricing.

The PCT partner organisations are agreed that energy prices are currently not well aligned with climate, environmental, and health costs. Strategies to better align energy prices with the costs include a wide range of measures, such as the removal of fossil fuel subsidies, imposition of carbon taxes or implementing emissions trading systems (ETS). Also, fuel taxes can be better aligned with climate and domestic costs.

The PCT partner organisations therefore take the view that carbon pricing can be improved by a range of different measures, including excise taxes to set an effective price on carbon. There are however gaps in the current knowledge of the subject and the PCT indicates further areas for research. One potential area for research is to study the different trade tariffs applying to low and high carbon-intensive goods and consider whether this tariff differential represents a carbon subsidy. Other research areas could include subsidies or taxes on deforestation-driving commodities that can affect prices in ways that that do not line up with their contribution to the level of greenhouse gas emissions.