IFA 2022: Carbon pricing is the next major project

According to OECD representatives Kurt van Dender and Pascal Saint-Amans, carbon pricing will be the next major undertaking on the agenda of the international organization.

The head of the tax and environment unit at the OECD and the director of the center for tax policy and administration both stated at an IFA panel that carbon pricing schemes, including carbon taxes, are expected to be the next project on a par with the BEPS activities plan.

Taxes on fossil fuels, excise taxes, and emissions trading systems are all examples of tools that offer distinct pricing indicators. Although carbon prices have risen since the COVID-19 epidemic began, van Dender claims that there are significant price differences across nations.

Because many nations are adopting zero-carbon emissions objectives based on the Paris Agreement, which translate into tax liabilities in the mid- to long-term scenarios for major firms, the panel attracted more attendees than some of the other IFA events.

The majority of participants support a carbon price. A strong international norm is necessary at this late stage of climate change, over 86% of the audience agreed.

Tatiana Falco, an international tax lawyer and coordinator for the coalition for climate action at the World Bank in Brazil, Ian Parry, a specialist in environmental fiscal policy and climate change at the IMF in Washington, D.C., and David Boublil, the deputy head of the indirect tax division at the European Commission in Brussels, were also on the panel discussing carbon pricing on Wednesday, September 7.

All things considered, creating a more inclusive norm for carbon pricing is a global problem. The discussion panelists' topics included what it means to price carbon, what makes up a carbon price, border adjustment mechanisms to control local carbon prices, and the many multilateral strategies available to coordinate the pricing of carbon worldwide.

Climate change mitigation strategy includes carbon price, and the fundamental technical specifications are crucial. In addition to other regulatory measures, trading systems can establish a price floor for carbon taxes, a natural pricing mechanism.

Different techniques have been used by different nations to address the hazards of climate change through tax policy. The US has a different regulatory framework, the EU has an emissions trading scheme, and Taiwan has enacted a carbon tax.

In North and South America, as well as Europe, several methods of carbon pricing are being researched and put into practice. The panelists agreed that carbon taxes, emissions trading systems, and carbon border adjustment mechanisms are the most easily accessible solutions internationally.

The trade of cement, iron and steel, fertilizers, and electric power for numerous significant corporations, from Apple to Deere, has been impacted by the different carbon pricing systems. There is a significant danger of carbon leakage in the supply chains of businesses that rely on the trade of these resources.

Regulations have not been effective enough to stop carbon leakage, though, since businesses may still move manufacturing to nations with low-carbon alternatives that still provide refundable credits to offset costs. The price of carbon is reduced via subsidies, rate reductions, exemptions, special regimes, and tradable performance criteria.

The main driver of border adjustment techniques is carbon leakage.

Prices for carbon increased in nations where they had already been high in previous months, such Canada, France, and the UK, but not significantly in other G20 nations. The US, Indonesia, and Argentina stand out as low performances. Along with this tendency, the Russia-Ukraine price shock hampered the development of carbon pricing in most nations, and price support declined in the wake of the incident.

Germany and other nations are forming climate clubs in an effort to coordinate carbon price adjustment systems across blocs in order to achieve greater international carbon pricing.

The OECD's efforts to lead and improve policymaking on such climate change initiatives are moving more slowly than delegates had anticipated, but after the organization completes work on the two-pillar solution to address tax issues in the digital economy, more resources will be allocated to international carbon pricing.

By fLEXI tEAM