A new open-source data tool tracks which national and subnational jurisdictions have put a price on carbon emissions over the past 30 years with either a tax or a cap-and-trade system.
Economists have long suggested that pricing greenhouse gas emissions, through taxes or cap-and-trade systems, is an efficient way to induce emissions reductions. To an extent, governments have listened: as of 2021, 43 national and 32 subnational jurisdictions had implemented a carbon pricing policy in at least one industrial sector. Scholars and interested parties looking to analyze the progress and effectiveness of carbon pricing policies, however, have lacked standardized data that are detailed enough to do so.
A new World Carbon Pricing Database (WCPD) addresses that problem. It is a data tool that sorts carbon pricing policies—both taxes and cap-and-trade systems—by jurisdiction and by sector from 1990 to 2020. Users can see which jurisdictions have adopted a carbon pricing policy, which type of policy they adopted and in which sector or sectors, when they adopted it, and how their policy or price on carbon has changed over time.
Resources for the Future (RFF) asked Geoffroy Dolphin, an outgoing postdoctoral fellow at RFF and the primary researcher behind the WCPD, about the applications of the tool, whom it could help, and how it might change in the future.
What is new about the World Carbon Pricing Database compared with previous efforts to track carbon pricing policies?
Geoffroy Dolphin: Previous initiatives that track and provide information on carbon pricing policies present two shortcomings. First, the information available usually is structured around carbon pricing mechanisms, not jurisdictions. Although carbon pricing mechanisms typically correspond to a single jurisdiction, this is not always the case; for example, the Emissions Trading System in the European Union and the Regional Greenhouse Gas Initiative in the United States both include multiple jurisdictions. Second, the information provided in previous initiatives is insufficiently granular for detailed analytical work.
The WCPD is an answer to these shortcomings. A key feature of the database is that it sorts information by territorial jurisdiction, not by carbon pricing mechanism. The database achieves this geographical organization by mapping information available for each mechanism onto individual jurisdictions. This mapping accounts for the possibility that multiple mechanisms apply to the same emissions sectors (e.g., if a carbon tax and a cap-and-trade system both apply to power sector emissions). In such instances, the WCPD presents information separately for each mechanism.
The database also provides detailed information at the sectoral level and covers the period from 1990 to 2020, which allows users to see changes in the price applied to carbon emissions in jurisdictions that have had carbon pricing policies. The WCPD is the most comprehensive attempt at providing a systematic sectoral breakdown of carbon pricing among jurisdictions in terms of the industrial sector and type of fuel to which the price applies, along with the associated change in price over time.
What relevance does the World Carbon Pricing Database have for researchers, policymakers, and governments that are interested in carbon pricing? Who stands to benefit from the new data tool?
The WCPD should prove to be of interest to a wide range of parties, including academic researchers, policy analysts, and interested civil-society organizations. The database adds value in at least two ways. First, it is a valuable tool for precisely tracking the development of carbon pricing mechanisms at the sectoral level. The emissions-weighted carbon price, which the tool calculates by combining the sectoral carbon prices, provides a useful summary of the level of carbon prices in each jurisdiction.
Improved data help with the evaluation of carbon pricing policies and enhance knowledge-sharing across jurisdictions, which in turn could foster implementation in new jurisdictions.
Second, the WCPD provides data that can be used to analyze the impact of carbon pricing (e.g., on greenhouse gas emissions) in a broad range of social, technological, and sectoral contexts. The database can provide information on carbon pricing mechanisms in multistate initiatives, such as the Regional Greenhouse Gas Initiative in the northeastern United States, and information on policies in individual states, such as California’s cap-and-trade mechanism. Similarly, for national jurisdictions, the database records the implementation of both supranational initiatives, such as the EU Emissions Trading System, and national mechanisms that target the same or other industrial sectors.
What do the data on carbon pricing policies over the past 30 years say about the popularity and effectiveness of carbon taxes and cap-and-trade systems?
Over the past 30 years, carbon pricing has moved from a theoretical framework to, in some nations, implemented and operationalized policy. The adoption of carbon pricing mechanisms, whether carbon taxes or cap-and-trade systems, picked up the pace in the period between 1990 and 2020, and early experiences have provided useful insights for later adopters. More importantly, the quality, accuracy, and availability of the information about these carbon pricing mechanisms has improved over time. These improved data help with the evaluation of carbon pricing policies and enhance knowledge-sharing across jurisdictions, which in turn could foster implementation in new jurisdictions.
The empirical evidence on carbon pricing has been limited for a long time, not least due to the paucity of carbon pricing mechanisms implemented and, to a lesser extent, the lack of standardized frameworks to compare these mechanisms across jurisdictions. The increase in the number of jurisdictions that have adopted carbon pricing over the last decade has provided an opportunity to study the impact of carbon pricing in a broader set of institutional contexts. The available evidence indicates that the introduction of carbon pricing mechanisms results in emissions reductions. However, the effect on emissions varies greatly from sector to sector. Emissions in the power sector are most sensitive to carbon pricing, in large part due to the availability of cheap technologies for renewable power generation, whereas emissions in industry are less responsive to carbon pricing.
What developments with the World Carbon Pricing Database would you expect to see or hope to see in the future?
The data set in the WCPD is under continuous development, and several extensions to it could be valuable complements to the information it currently contains. I see two particularly important extensions. The first is an extension to greenhouse gases other than carbon dioxide. Several jurisdictions place a price on the emission of other greenhouse gases, and extending the database to those gases would provide a comprehensive picture of pricing carbon, and not just pricing carbon dioxide.
The second extension is an integration of information about tax-free allowances and free allocations of emissions permits. This integration of data matters, because most existing pricing mechanisms grant “price-free” emissions allowances to certain sectors—and firms within them. In the case of carbon taxes, these allowances are tax-free emissions; in the case of cap-and-trade systems, the emissions allowances come in the form of free allocations. Such allowances reduce the average carbon price to which firms are exposed.
Both extensions are ongoing, but some further work is needed to get them over the finish line—stay tuned!
Based on your research, what advice would you give to policymakers, firms, and consumers?
A lot could be said, but I’ll keep it brief. To policymakers, I would say that carbon pricing stands as a very valuable instrument to reduce emissions efficiently and thus lower the cost of achieving objectives for emissions reductions. Ensuring cost-effectiveness is especially important in light of the very ambitious objectives (e.g., net-zero greenhouse gas emissions) that some jurisdictions have set for themselves. At the same time, pricing carbon remains challenging in some sectors and jurisdictions. The economic and political suitability of carbon pricing may depend on how far a jurisdiction has progressed toward decarbonization—for example, its access to greenhouse gas–free technologies.
To firms and consumers, I would say that the odds that climate policy will become more stringent are increasing every year . This trend likely will prompt firms and consumers to align their investment and operational decisions with the new policy reality. In other words, I would argue that it is in their interest to adopt technologies (e.g., heating or transport) that would allow them to do away with the consumption of fossil fuels because climate policies, whether carbon pricing or other instruments, will raise the cost of technologies that emit carbon dioxide.