Carbon pricing drives companies to make substantial emission cuts with limited or no harm to competitiveness, a new OECD paper showed on Monday, evidence that could ease fears for lawmakers imposing the policies.

“While carbon pricing induces firms to substantially abate emissions, their negative effects on competitiveness are limited at worst,” the OECD’s Johanna Arlinghaus said in a new working paper seen by Carbon Pulse that reviewed academic studies evaluating carbon pricing and their impacts on competitiveness.

Over 60 countries and sub-national jurisdictions have implemented carbon pricing to curb emissions, but the price signal in most of those is distorted by exemptions and concessions to help industries compete equally with companies in places without such policies.

The OECD paper found that studies evaluating the effects of carbon pricing found they can be introduced without damaging competitiveness and even questioned whether widespread industry concessions were necessary.

“While the concern over competitiveness effects is often a major argument against the introduction of carbon prices, these results mean that carbon prices, at their current levels and design, can be introduced without hurting competitiveness – they do not say that carbon prices would never hurt competitiveness.”

“The results … put a question mark on the manifold exemptions and rebates which have been introduced alongside carbon prices for many firms and industries, to prevent competitiveness effects from emerging.

While the studies show little evidence of harm to competitiveness, their findings are limited in scope because many carbon pricing policies have resulted in a price of around €10 or less, which is below levels required to encourage firms to invest in carbon-cutting technologies in many sectors and regions.

A major subject of study was the EU ETS, the world’s biggest carbon pricing policy, where prices once reached €30 per tonne of CO2 around 2008. But prices have languished for several years below €10 because lawmakers were reluctant to enact reforms to boost prices as talks on a global climate agreement stalled and amid fears the resulting hike in energy prices could dent the bloc’s economic recovery.

The OECD paper suggested that researchers in future could focus on comparing firms receiving the exemptions to those that haven’t as it said comparatively little work had been done on this.

By Ben Garside – ben@carbon-pulse.com