Climate Brief N°55

Carbon pricing across the world:

how to efficiently spend growing
revenues?
Paris,
October 2018  lément Métivier | Sébastien Postic
Authors : C

An acceleration of carbon pricing policy implementation
is underway. By April 2018, 46 countries and 26 provinces
had implemented an explicit carbon pricing instrument: a
carbon tax or an emissions trading scheme (ETS). These
jurisdictions account for 60% of global GDP. More than
25 carbon pricing instruments have been announced for
the years ahead.
This acceleration has an impact on the increase
in associated revenues: in 2017, carbon pricing
instruments have generated revenue of USD 32 billion
(EUR 26  billion), up from USD 22  billion in 2016. This
increase raises the issue of the use of revenues, which can
no longer be considered as the incidental co-benefit of a
purely behavioral instrument.
International experience points to very different uses
for these revenues. These uses can be classified into
four categories: investment in low-carbon projects (46%
of revenues), allocation to the general budget (44% of
revenues), reduction of other taxes (6% of revenues), direct
payment of premiums or subsidies (4% of revenues).
Several dimensions must be considered when assessing
the relevance of revenue utilization. Macroeconomic
performance, environmental performance, distributive
impacts, ease of communication, and governance are all
criteria for assessing the relevance of forms of revenue
utilization.
While there is no one-size-fits-all solution for revenue
utilization, transparency of expenditure nevertheless
seems essential. National discussions are vital to
determine the most appropriate use for each context
and they also serve as important levers for increasing the
acceptability of carbon pricing. Similarly, acceptability
increases sharply when citizens are informed about how
revenues are spent, and also when decision makers
publicly report on these uses.

Map
Map of of carbon
carbon revenus
revenues aroundin 2017
the (ininUSD
world 2017million)
(in million USD)
Alberta* Sweden
644 152 Norway 2,853 -3%
British
Columbia -5% Iceland 2,555 +22%
945 +5% Finland
37 +19% 1,568 +20%
Quebec
477 +39% Denmark
2
Estonia
594 +12% 0%
Ontario** U.K.
1,190 -16%
Latvia
1,482 10
+67%

Ireland Poland
1 0%
527
-1% Ukraine
4 +33%
California RGGI France
2,024 +125% 198 -26% 5,862
92 Slovenia
Mexico +39% +16%
Colombia*
476 Portugal Switzerland
+29% 161
171 +29% 1,133 5
2,338 +6%
+6% +25% Liechtenstein
Japan
5 0%

Revenues are given

for calendar year 2017, EU
in million USD 6,229
Chile* +48%
X% Change in revenue between
168
calendar year 2016 and
calendar year 2017
Established Emissions
Trading Scheme
Established Carbon Tax Australia
182 -72%
* New carbon pricing instrument, 2017 is the first year for which revenue is generated.
** The ETS in Ontario was cancelled in 2018. Source: I4CE – Institute for Climate Economics with data from World Bank,
government officials and public information, October 2018.

Climate Brief n°55 – Carbon pricing across the world: how to efficiently spend growing revenues? – I4CE | 1
 4 main categories to address specific contexts for carbon
revenue use – practical examples

LOW-CARBON PROJECTS: REVENUE FROM THE QUEBEC REDUCTION OF OTHER TAXES: SWEDEN INTRODUCES
CAP-AND-TRADE IS ADMINISTERED BY THE GREEN FUND A CARBON TAX, WHILE REDUCING ITS TAX BURDEN

Type of mechanism Cap-and-trade system Type of mechanism Carbon tax

CO2 emissions covered CO2 emissions covered
85% 40%
by the mechanism by the mechanism
Start date 2013 Start date 1991
2017 revenue USD 477 million 2017 revenue USD 2,853 million

Revenue from the Quebec cap-and-trade system is
allocated to a specific instrument, the Green Fund,
and dedicated to mitigation and adaptation projects to
address climate change. Two-thirds of the Green Fund’s
revenue must be directed to the transport sector, the
province’s largest emitter, particularly to develop public
transport and to electrify transport modes. In total, more
than 20  programs receive financial support from the
Green Fund.
The Swedish carbon tax was introduced as part of broad
tax reforms in the early 1990s, in parallel with a reduction
of income and labor taxes. Subsequently, as the carbon
tax rate increased, employers’ social contributions were
reduced and the most vulnerable households benefited
from income tax exemptions.

DIRECT PAYMENT OF PREMIUMS OR SUBSIDIES:

GENERAL BUDGET: IRELAND RELIES ON CARBON TAX CARBON TAX REVENUES ARE REDUCING HEALTH
TO INCREASE STATE RESOURCES INSURANCE PREMIUMS IN SWITZERLAND

Type of mechanism Carbon tax Type of mechanism Carbon tax

CO2 emissions covered CO2 emissions covered
49% 36%
by the mechanism by the mechanism
Start date 2010 Start date 2008
2017 revenue USD 527 million 2017 revenue USD 1,133 million

Ireland’s carbon tax was introduced when the country
was hit by the 2008 global economic crisis. As public debt
reached record levels, Ireland implemented a recovery
plan for its economy, including broad tax reforms. These
reforms introduced various instruments to increase state
revenue, including a carbon tax. Carbon tax receipts are
used to increase the government’s overall revenue.
Two-thirds of Swiss tax revenues are redistributed annually
to businesses and households. For companies, income
redistribution operates via reductions in social security
contributions. For citizens, an amount is deducted from
the health insurance premium, which is mandatory in
Switzerland. This amount is the same for every citizen,
regardless of income or consumption level. In 2018, every
Swiss citizen received USD 90 through this direct transfer.

A TOPICAL ISSUE, ALL OVER THE WORLD

The case studies presented here come from a report produced in collaboration with the World Bank’s Partnership
for Market Readiness program and the Agence Française de Développement. In response to the growing number
of questions about the use of carbon revenues, this report, to be published in December, reviews the increasing
number of examples from around the world. It also provides public decision makers with the means to evaluate
and design ways of using revenues derived from carbon pricing.

2 | I4CE – Climate Brief n°55 - October 2018

 GOVERNANCE, A KEY ISSUE FOR REVENUE UTILIZATION

The following questions facilitate testing the relevance of decisions made throughout the process of setting up
carbon pricing instruments:
Prior to instrument set up
• Has the revenue use been the subject of consultation beforehand?
• Are the different stakeholders (ministries, private sector, civil society) represented in the decision-making bodies
in proportion to (1) their contribution to revenue raising, and (2) the impact they will experience as a result of the
fiscal policy?
• Is the autonomy of the authorities responsible for revenue management in line with the general objectives and the
local institutional context? In particular, is recourse to an independent fund justified?
In Quebec, an independent management board has been established to oversee decisions made by the Green
Fund, which is responsible for the redistribution of the cap-and-trade system’s revenue.

Following instrument set up

• Is the information on revenue utilization available to the general public and updated regularly?
• What safeguards are in place to ensure compliance with the key commitments associated with the carbon pricing
policy?
• Have review and verification mechanisms been implemented to allow changes and improvements to revenue
use? How are public authorities accountable for the proper use of revenues?

In California, the law requires that at least 35% of the auction proceeds benefit the most disadvantaged
populations. In practice, more than 50% of revenues benefit the poorest households. An interactive map
detailing all projects and programs supported by carbon revenue is also available on the California Climate
Investments website.

CARBON PRICING REVENUE IN G20 COUNTRIES

As part of the Climate Transparency initiative, I4CE has compiled carbon revenues in G20 countries from
2007 onwards. Following 5 years of relatively slow growth, carbon revenues have grown from USD 4.2 to
USD 22.2 billion between 2012 and 2017, an increase of 429% in five years.

25,000
22,200

20,000
17,634
Revenues in USD Million

15,616
15,000
12,687
11,108
10,000

5,000
4,171

730 930 1,040

40 300
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Alberta (Carbon tax) California (ETS) France (Carbon tax)

Alberta (ETS) RGGI (ETS) Japan (Carbon tax)
British Columbia (Carbon tax) Mexico (Carbon tax) Australia (Carbon tax)
Ontario (ETS) European Union (ETS) Australia (ETS)
Quebec (ETS) United Kingdom (Carbon tax)

Climate Brief n°55 – Carbon pricing across the world: how to efficiently spend growing revenues? – I4CE | 3
 Carbon pricing: use of revenues (in million USD)

Alberta  96  16  44
RGGI, USA  176  22

Volume o
f reve
nue
de c
rea
s es
USD 11,139 M 482
1,499
4,657
2,024

RGGI, USA Quebec

1,356
2 1,723
Alberta
Ont
Ca

ce
1
ario
lif

an
or

Fr
ni
a

ETS 2,927
EU ETS Sweden
Carbon
5,424 tax
Volume

Ja
pa
ile n
h
al C
d

No
of re

g
bia

Finla
and

rtu ia rk
United-Kingdom
la

rw
I re o
ic

o
P m mab
ve n

lum

ay
ex

Switzerl

lo en
nd
M
ue

Co D 2,471
Co
a
dec

ert
tish
Alb
rea

Bri
se
s

477
70
75
196 2,089
458
434 USD 21,090 M
951 368 189 654
654
747 1,074
Portugal  133
Chile  160
Source: I4CE - Instute for Climate Economics
Colombia  171 with data from World Bank, government
Denmark  33  194  185 officials and public information, April 2018

1 Year of implementation Key takeaways

Carbon tax since 2013 •6
 5% of carbon revenues are generated by carbon taxes,
Carbon tax between 2008 and 2013 amounting to USD 21 billion. ETS have generated USD 11 billion.
Carbon tax before 2007
Emissions Trading Scheme since 2013 •M
 ore than 67% of carbon revenues come from member countries
Création-réalisation : SophieBerlioz.fr

Emissions Trading Scheme between 2008 and 2013 of the European Union.
Emissions Trading Scheme before 2007
•A
 t the global scale, 46% of revenues are earmarked for projects
2 Revenue uses dedicated to the low-carbon transition; 44% are allocated in the
general budget; 6% finance tax exemptions; and 4% are directly
Earmarking
General budget allocation transferred to businesses and households.
Tax exemptions
Note: Figures represented here are for calendar year 2017 or fiscal year 2016/2017.
Direct transfers
If no data was available, calendar year 2016 was taken into account.

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