Charles Baubion, OECD Directorate for Public Governance, and Clara Young, OECD Insights
It has been a wet winter in Paris and the River Seine is rising fast: 2 cm, or about an inch, every hour. This will bring the Seine to a little over six metres, as measured by the Austerlitz monitoring station or, as Parisians will tell you, up to the thighs of the Le Zouave statue on the Pont de l’Alma (our photo). That’s how high it got in 2016. Already, several major roadways along the river banks have been flooded over, while the city authorities are issuing warnings, not just in Paris, but in several French cities. How bad can it get?
The 2016 flood caused more than €1billion worth of insured damage, two deaths, and severe disruptions to the transport system. Well over 17,000 people were forced to leave their homes. While upper parts of the river catchment suffered significant damage, Paris itself was spared. If the water had gone 25 cm or 10 inches higher, it would have been a large-scale crisis, authorities said. There is no room for complacency, and even if the peak this time is officially expected to be reached in the next few days, everyone is monitoring the rainfall closely.
Before 2016, floods in Paris occurred on average every 20 years. The Seine has not significantly overflown since 1955, the high-water mark being the great flood of 1910. At 8.6 m on the Austerlitz scale, the river turned Paris into Venice that winter. In its 2014 Review of Risk Management Policies: Resilience to Major Floods in the Seine Basin, the OECD estimated that a flood of the same magnitude today would cost France between €3 and €30 billion.
The OECD made 14 recommendations on how the Paris region could boost flood resilience and emergency preparedness in the review. More than half of these have been put in place says the follow-up report, released this week, but a better integration of flood risks into urban policies is still being held up by governance and financing difficulties.
Decentralisation and the consolidation of greater Paris into the Grand Paris Metropolitan Authority can open up co-operation on flood management in new administrative structures. The Grand Paris Metropolitan Authority should work closely with local authorities in the Seine basin to define a global, long-term flood strategy for the region.
A flood-resilience framework would give coherence to initiatives such as a charter to design resilient neighbourhoods and a serious rethink of areas within the flood plain that are currently earmarked for densification. Priority could be given to upgrading protective dykes and quay walls along the river as well as critical infrastructure vulnerable to flooding. It could spur storm preparedness for businesses, even small ones, so that they can keep going even as the waters rise. Examples from the reconstruction of a resilient New Orleans after Hurricane Katrina, or New York after Sandy, could inspire Paris to build up its own resilience before disaster hits.
All of this requires money of course and this week’s report finds that available flood prevention funding is still not enough. For the past 20 years, there has been talk of developing flood water storage–marshlands and an artificial lake–at La Bassée, upstream from Paris. It would be able to take in 55 million cubic metres of water but costs an estimated €600 million. To fund this and other flood resilience projects, the government needs to develop a more ambitious, long-term and holistic strategy co-ordinated with anybody who benefits from flood protection, whether it be network operators, enterprises or local authorities. Even individual citizens in what is one of the richest regions in Europe could do their part by paying a flood prevention tax. Local authorities could explore cutting-edge financial mechanisms to fund initiatives, such as green bonds.
In 2024, Paris will host the Olympic Games. With its ambition to produce 55% less carbon emissions than the 2012 London Olympics, Paris hopes to stage the greenest games in history. If it manages to incorporate flood risk into its planning now, the Olympic Games will be high and dry.
References and links
Read the press release “Further improvements needed to manage major flood risk in Paris and Seine basin” at http://www.oecd.org/newsroom/further-improvements-needed-to-manage-major-flood-risk-in-paris-and-seine-basin.htm
OECD (2014), Seine Basin, Île-de-France, 2014: Resilience to Major Floods, OECD Publishing, Paris.
Read “Small Business Storm Preparedness” at https://static1.squarespace.com/static/50dcbaa5e4b00220dc74e81f/t/ 523d9e21e4b0019d4f5b07e9/1379769889160/RedHookStormPreparednessPlan.pdf
Read “What if Paris flooded” in the OECD Observer at http://oe.cd/2bZ
Ronnie Downes, OECD Budgeting & Public Expenditures Division
Ever hear of triple-bottom line accounting? This is what businesses use to go beyond the usual financial balance sheet to ensure their accounts reflect environmentally and socially responsible profits and loss. Shareholders and clients increasingly want companies to be clean and responsible in their business practices, to such an extent that it can affect their stock value.
But what about government? Shouldn’t public finances also follow such quality criteria so that we can hold our politicians to account and ensure our tax money is taking care of the environment?
In our view, budgeting is not a “neutral” reporting exercise, but one of the most effective ways of making sure that public money is put to work properly, and that policies are actually helping governments to achieve important goals, like fighting climate change and cutting pollution, for instance.
“Green budgeting” aims to use the budget–taxes, spending and policy co-ordination–to assess and promote the alignment that is essential to meet environmental goals. For example, green budgeting shows financial outlays that have positive climate change impacts, and highlights tax policy choices that must be confronted as fuel is “decarbonised”, whittling away a major source of government revenues.
Many large private corporations employ the triple-line accounting championed by the likes of the Global Reporting Initiative, an independent organisation, to measure overall company performance according to not only traditional profit and loss, but social responsibility to people, and environmental performance as well. But the public sector has been slow to do the same. This will have to change. The climate change targets we have set in the Paris Agreement, Aichi Biodiversity Targets and the United Nations’ Sustainable Development Goals require that governments know what portion of their budgets is moving their countries towards reaching these targets and what portion is hindering it, and to craft their policies accordingly.
With the backing of France and Mexico, OECD Secretary-General Angel Gurría announced the green budgeting initiative at the One Planet Summit in Paris in December 2017, along with a call for meaningful carbon pricing.
French president Emmanuel Macron welcomed the initiative enthusiastically: “We are launching the “Paris Collaborative on Green Budgeting” within the framework of our zero-emission objective,” he said at the global climate financing summit. “Analysis of the budgets of OECD countries furthers transparency, and I thank Angel Gurría for his contribution to this framework. The work of the OECD will enable budget presentations launched by a group of pilot countries. Obviously, we will be contributing with presentations that show how the budget each year is distributed according to climate objectives.”
The OECD has brought together a cross-disciplinary group of environmental, tax, budget and fiscal affairs experts who will partner with countries to help them assess and improve their budgets and fiscal policies for climate resilience. Among other things, green accounting looks at how subsidies that are harmful to biodiversity or which push the planet’s carbon emissions output compare with resources the government puts in these two areas. The Collaborative will analyse how coherent fiscal policies are with developing low-emissions, sustainable strategies. And, taking inspiration from the OECD’s work on “gender budgeting”, which determines how budgets impact gender equality, it will promote environmentally-sensible budgeting.
The OECD will work with countries to set a new global agenda for green budgeting with agreed-upon definitions, and common methods, guidelines and tools to bring about sustainable public finance flows. Tools include those that track the impacts of decarbonisation and carbon pricing on fossil fuel use and tax revenues in each country, and voluntary “green budget statements” to show the environmental credentials of the annual budget.
Companies adhere to triple-line accounting because it shows the true cost of doing business. Likewise, by knowing the environmental costs and benefits incurred in serving its citizens thanks to green budgeting, governments will be better able to raise the planet’s bottom line.
References and further reading
OECD (2017) Investing in Climate, Investing in Growth, http://oe.cd/g20climate
OECD (2015) Recommendation of the Council on Budgetary Governance, http://oe.cd/UA
OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems, OECD Publishing, Paris, http://oe.cd/2bz
For more on the Global Reporting Initiative today, see www.globalreporting.org and read Massie Robert Kinloch (2001), “Reporting on sustainability: A global initiative”, OECD Observer No 226/227, Summer, http://oe.cd/wbO
Robert Akam and Guillaume Gruere, OECD Trade and Agriculture Directorate
The wet and verdant expanse of the Mekong Delta’s rivers and farms is a veritable rice bowl for the world. Not only do the region’s paddies produce half of Viet Nam’s rice crop yearly, the country is the world’s third largest rice exporter, with 17% of world exports of paddy rice, the vast majority of which is produced in the Mekong River delta.
But the natural wealth of the great delta belies serious risks which people living in this fragile, low-lying ecosystem now face. Quite simply, the abundant freshwater that defines this region is coming under threat.
In recent years, saline water has started to encroach further inland from the ocean, to such a degree that farmers in some areas of the delta now speak of a “salty season”. Some have even had to change from growing rice to farming shrimp which can cope in the now brackish water. Local communities are increasingly turning to pumping groundwater for irrigation, aquaculture and drinking water, but this only accelerates the salinisation. Pumping also causes land subsidence and depletes underground water supplies, reducing water security for future generations.
Meanwhile, sea levels are expected to rise in the region by 45-75 cm by 2090. This is a major threat to a part of the world which on average is less than two metres above sea level. A rise in the sea level of only 30 cm could see the loss of nearly 200 000 hectares of rice cultivation.
These risks are compounded by extensive dam-building along the river’s length and the development of sand mining. Together these activities severely impede the flow of the sediment that supports fish and shrimp farms and replenishes soils in the delta lost to erosion.
The economic risks are significant, and not just for Viet Nam. How long will it be possible to maintain rice production given the ongoing damage to the ecosystem? And at which point will the impact of these water risks begin to affect global markets?
The Mekong Delta is one of a number of localised agricultural regions in the world that face acute water risks, which we have identified as water-risk “hotspots” that require a targeted policy response. These water risks are not only the result of climate change but involve a range of factors,including farming itself, that cause water shortages, floods and degradation of water quality, all of which threaten agricultural production.
Our projections of future water risks suggest that China, India and the United States will be the three countries where agricultural production will be the most severely affected globally. Water stresses in the hotspot regions of northeast China, northwest India and the southwest United States alone would result in price increases of 5-8% globally for certain commodities, such as cotton, maize and wheat, and cause significant shifts in their trade too. Our analysis identifies Viet Nam as facing the world’s fourth highest water risks for rice production.
In the face of water risks, how can we safeguard agricultural production and our food security? Targeted adaptation and co-ordination will be key here. Farmers can shift production–as is already taking place in the Mekong delta–or improve their agricultural practices, such as changing when in the year they plant crops or adopting new and adapted rice varieties. At the same time, agro-food companies could work with farmers to improve their practices, such as by providing them with saltwater monitoring systems, or by encouraging rainwater collection as a supply of freshwater in place of groundwater during the dry season.
In parallel, governments must focus their attention and efforts on hotspot regions by tailoring existing policy instruments and introducing new measures that directly address water risks, while ensuring their actions complement those of private actors. They also need to strengthen market and trade relationships at the national and international levels to dilute price effects and ensure regional impacts are contained. This response would be supported by efforts at the international level to share information about water risks to reduce the spread of indirect impacts.
Just as with our case studies in northeast China, northwest India or the southwest United States, public and private actors in the Mekong delta are now taking the first steps to mitigate agriculture water risks in the region, as discussed at the first Asia Pacific Economic Cooperation (APEC) Meeting of Water Resource Authorities on “Challenges for food security in a context of climate change”, in Viet Nam in August 2017.
These efforts need to be intensified in a strategic and co-ordinated manner, as we argue in Water Risks Hotspots for Agriculture, to ensure that they effectively reduce the risks for future generations. With the right policies and approaches, not only can food production in hotspots such as the Mekong delta and other farming regions be preserved, but people’s livelihoods and the great ecosystems we rely on can also be secured.
References and further reading
The report findings were presented during a OECD: Green Talk Live webinar on 18 October 2017, the recording of which is available at: https://www.youtube.com/watch?v=BYX6sUk6DFI
OECD (2017), Water Risk Hotspots for Agriculture, OECD Publishing, Paris.http://dx.doi.org/10.1787/9789264279551-en
USDA Foreign Agriculture Service (2012), VIETNAM: Record Rice Production Forecast on Surge in Planting in Mekong Delta, Commodity Intelligence Report, December 12 2012. https://ipad.fas.usda.gov/highlights/2012/12/Vietnam/
An overview of the OECD’s work on water use in agriculture can be found here.
(References updated on 18 January 2018)
The blog was inspired by presentations given by C. Krittasudthacheewa (Stockholm Environment Institute), Nguyen Hieu Trung (University of Can Tho), Le Duc Trung (Viet Nam National Mekong River Committee) and Harro Stolpe and Katrin Broemme (Ruhr-University of Bochum, Germany) at APEC’s First Meeting of Resource Authorities in Can Tho, Viet Nam, August 18-19 2017.
Lara Fleischer, OECD Statistics Directorate
Is trust between people and their governments crumbling? What the great philosopher Jean-Jacques Rousseau called the social contract, whereby free citizens voluntarily agree to concede authority to the state in their own interest, could be in question. The OECD’s How’s Life? 2017 report finds that only 38% of people in OECD countries say they trust their government. In 2006, this figure was around 42%. Why is there such a “disconnect” between citizens and their elected representatives?
The 2008 crisis is often blamed and could well be a factor. Indeed, trust has fallen by more than 15 percentage points in Greece, Portugal, and Spain–some of the OECD countries hardest hit by the crisis. They have also have seen the largest falls (or smallest growth) in household income and earnings since 2005, as well as some of the largest increases in long-term unemployment. By contrast, in Germany, Poland, and Slovak Republic, which are some of the countries where trust has increased the most, the average resident is generally better off than they were in 2005.
Nevertheless, the trust issue goes beyond the Great Recession and there is more to it than simple economics. In the US, where opinion polls measuring confidence in federal government go back to the late 1950s, trust has been consistently falling over the long term.
There may be other sources for the disconnect between citizens and their government. How’s Life? shows that the political class does not always reflect the people it serves. In the 11 OECD countries for which data is available, manual, agricultural and service workers make up 44% of the working population, but only 13% of legislators. Politicians are much more likely to have had a professional or senior management career. Not surprisingly, people might feel politicians are out of touch with their daily lives and unable to understand their basic struggles, from the cost of living to their need for quality public services. Additionally, How’s Life? finds that more than half of OECD residents consider corruption to be widespread in their government.
Deep and chronic distrust of government impedes the smooth and stable functioning of institutions. For one thing, this is bad for economic activities that require the confidence of investors and consumers.
But distrust is bad for democracy, too. The social contract is a two-sided coin. Good governance requires active citizen participation, but what we are seeing instead are people who are disengaging from traditional forms of politics. Voter turnout across the OECD has been steadily declining, and more so among people that are already the least well-represented in public life. How’s Life? shows that younger people and those with lower incomes are less likely to go to the polls: self-reported voter turnout is 14 percentage points lower for people in the bottom income quintile compared to those in the top quintile, and turnout for people aged 65 or more is around 17 percentage points higher than among youth aged 18-24. The trouble is that this disaffection gives the elderly, the more educated and the wealthy a greater political say compared to the rest of the population. This has affected the way people vote as well: in Europe, distrust of institutions has gone hand-in-hand with a rise in voting for non-mainstream, populist parties.
That said, voting is the most traditional form of civic engagement, and new types of activism (think of hashtag campaigns, the Occupy or Black Lives Matter movements) have been emerging. However, there is little evidence on whether groups on the margins have shifted to these to make their voices heard. Tellingly, How’s Life? notes that only one in three people in the OECD feel they have influence on what the government does. This feeling is even weaker among the less educated and less wealthy.
The first step in addressing the trust crisis is to monitor data regularly, analyse trends and identify what is needed to strengthen and restore trust. But, with the exception of Australia, Canada, and New Zealand, trust measurement does not have a long tradition in official statistics and is not collected frequently enough or in a way that is internationally comparable.
One reason trust has not been part of statistical offices’ standard repertoire is its inherent intangibility. If you ask a person through a questionnaire whether they trust their government, is their answer good enough in terms of statistical quality?
The newly released OECD Guidelines on Measuring Trust offer international recommendations on collecting, publishing and analysing trust data to make it easier for national statistical offices to do so (Besides trust in institutions, the guidelines also focus on trust in other people, which is a key element of social capital.) On the question of statistical quality, the guidelines provide evidence about the validity and reliability of trust data. It examines non-response rates, the relationship between self-reported trust measures and other proxies such as experimental behavioural indicators, and the consistency of results across surveys and over time. They conclude that we are indeed only at the beginning of fully understanding measures of trust in institutions, but that existing evidence of their statistical quality is encouraging. In order to answer remaining questions, more official data on trust and their potential determinants should be collected.
The guidelines feature five different question modules, with a core module that can readily be inserted into household surveys measuring trust in Parliament, the police and the civil service.
The guidelines are designed to build the evidence base needed to restore trust. Left unchecked, the growing alienation between people and institutions will feed the disengagement and frustration we are now witnessing in some countries.
What is your view? Do you trust your government? What do you suggest should be done to win the public’s trust back?
References and links
OECD (2017), OECD Guidelines on Measuring Trust, OECD Publishing, Paris.
OECD (2017), How’s Life? 2017: Measuring Well-being, OECD Publishing, Paris.
Algan, Yann et al., (2017) “The European Trust Crisis and the Rise of Populism”, Brookings Papers on Economic Activity, Washington, DC. www.brookings.edu/wp-content/uploads/2017/09/4_alganetal.pdf
Clara Young, OECD Public Affairs and Communications Directorate
Listening to the radio this morning, I heard a story about a former FBI agent who had come out of retirement to reopen a very old case: who tipped off the Gestapo to Anne Frank’s whereabouts? There have been two investigations into the circumstances leading up to the arrest of the young diarist and her family on 4 August 1944 in Amsterdam, but this newest attempt is using artificial intelligence (AI). “The artificial intelligence programme will be able to make connections and associations of dates, persons and locations that would take a human investigator a minimum of 10 years to come up with,” lead investigator Vince Pankoke told the Canadian Broadcasting Corporation (CBC).
Artificial intelligence can solve the most intractable of puzzles. But with it come many new, possibly more intractable, questions. At a recent OECD conference “AI: Intelligent Machines, Smart Policies”, researchers, economists, policymakers, advisors, and labour and corporate representatives came to grips with the vastly different landscape AI is beginning to create. With their algorithmic ability to navigate through the noise of big data, machine-learning AI robots are commonplace in biotech labs. They formulate scientific hypotheses, devise and conduct experiments, and analyse test results, probing deeply and around the clock. AI can pilot vehicles, determine what your car insurance premium should be, detect malicious cyberactivity, improve medical diagnoses through image recognition like radiography and ultrasonography, and even compose music.
But will such tremendous computational and learning capacities upend human society? Stuart W. Elliott, who is Director of Board on Testing and Assessment at the US National Academy of Science, observes that AI currently has literal and numerical levels that are as good as if not better than 89% of adults in OECD countries. What implications does that have for competition in the labour market? How can policy makers and legislators plan for the magnitude of labour disruption automisation will bring?
Another conference takeaway is the need for transparency in AI decision-making. When software is making decisions on whether, for example, a driverless car should swerve away from an oncoming bicyclist and hit a pedestrian on the sidewalk, or if a job applicant should be hired or rejected, people should be able to look at the chain of reasoning leading up to an AI decision. There is also the concern that the algorithms in AI software distort natural biases implicit in data. For instance, Science reported that tests have shown that machine learning software absorbs societal racial biases in data, and makes stereotyped associations between European American names and positive or pleasant terms, and African-American names and negative or unpleasant terms. A related study showed that job applicants with European American names were 50% more likely to be accorded an interview by AI software.
But perhaps the biggest preoccupation at the conference is the data conundrum. In a forthcoming OECD interview, Dudu Mimran, CTO of Telekom Innovation Laboratories and Cyber Security Research Center at Ben-Gurion University in Israel, described the current data environment as the “…Wild West with all companies collecting any data”. Data is used to train artificial intelligence, and the more of it the better. But do we always know where it is coming from? And, who owns it? Digital advisor to the Estonian government Marten Kaevats stood up during a panel discussion and said, “The people own their own data.” In embracing digitalised government so early on, Estonia may be considered as a leader on data issues. Its citizens’ health and tax records are online, protected by a closed blockchain system. Online voting was introduced in 2005. But outside such digitally advanced regimes, most people do not know where their personal data reside, how it is being used, and whether its integrity is being safeguarded. One example of data carelessness is the discovery in 2016 that the UK’s National Health Service had given Google-owned AI company DeepMind access to the healthcare data of 1.6 million patients without adequately informing them.
Safeguards exist against such errors. These include the 1980 OECD Privacy Guidelines revised in 2013, the EU’s General Data Protection Regulation, which comes into effect in 2018, and the 2016 signing of the US-EU data protection “Umbrella Agreement” which governs data-sharing in criminal investigations. But, AI raises potentially new and specific privacy risks that may not be covered by these data protection regulations and agreements.
In the case of Anne Frank, the data surrounding her and her family’s capture is 73 years old. Privacy is no longer an issue. For the rest of us, however, the ever-broadening and creative reach of data mining requires vigilance.
References and links
Bohan, John (2017), “A new breed of scientist, with brains of silicon”, Science. See: www.sciencemag.org/news/2017/07/new-breed-scientist-brains-silicon.
Hodson, Hal (2016), “Revealed: Google AI has access to huge haul of NHS patient data”, New Scientist. See https://www.newscientist.com/article/2086454-revealed-google-ai-has-access-to-huge-haul-of-nhs-patient-data.
Elliott, Stuart W. (2017), “Artificial intelligence and the future of work and skills: will this time be different?” at: https://www.oecd-forum.org/channels/722-digitalisation/posts/21601-artificial-intelligence-and-the-future-of-work-and-skills-will-this-time-be-different.
European Commission (2016), “Signing of the ‘Umbrella’ Agreement: A major step forward in EU-U.S. relations”, Brussels. See: http://ec.europa.eu/justice/newsroom/data-protection/news/160602_en.htm.
Caliskan, Aylin; Bryson, Joanna J.; Narayanan, Arvind, “Semantics derived automatically from language corpora contain human-like biases”, Science, 14 Apr 2017: Vol. 356, Issue 6334. See: http://science.sciencemag.org/content/356/6334/183.
Elisa Lanzi and Rob Dellink, OECD Environment Directorate
Air pollution in Delhi has been so bad this November that the Indian Medical Association declared a public health emergency. At more than 25 times the WHO recommended level, the pollution peak in India’s capital has been extraordinary. This is becoming increasingly common in Delhi and other cities around the world due to emissions from biomass burning, coal fire plants, agriculture and especially agricultural burning and diesel transport.
Dangerously high concentration levels of air pollutants, and especially of fine particles, cause an increase in asthma attacks and lung conditions. Alarmingly, air pollution is tied to longer-term chronic health problems, such as respiratory and heart diseases, premature and underweight babies, allergies and increasing incidences of cancer. All these lead to a sizable–and increasing–number of premature deaths and illnesses. According to the latest Global Burden of Disease study published in The Lancet, outdoor air pollution caused more than a million premature deaths in India in 2016, whose cost, according to OECD estimates, amounts to more than USD 800 billion. But that is not all: there is a range of other social costs associated with air pollution, such as costs related to pain and suffering, and costs to biodiversity and ecosystems.
Air pollution also exacts costs on the economy with additional health expenditures as well as lost work days, which affect labour productivity. And, agricultural productivity can also be severely affected by air pollution as high ozone concentrations and slow plant growth reduce crop yields with important economic consequences.
Strong policy action must be taken. According to projections by the OECD the population-weighted average concentrations of PM2.5–the finest, most harmful particles–are projected to increase threefold by 2060 if ambitious action is not taken. Premature deaths from being exposed to pollution are projected to increase up to five times. This is a staggering number, and represents up to a third of global projected deaths in 2060. Incidences of illness will similarly worsen. Lost working days will increase significantly, to levels equivalent to more than six million people missing work on a daily basis by 2060.
Market costs to the Indian economy are projected to increase eightfold to over USD 280 billion by 2060–this is more than 7% of India’s current GDP (in 2005 Purchasing Power Parities exchange rates). The social costs from mortality due to air pollution would increase 15 to 33 times, as both the number of premature deaths and the value per death increase.
Air pollution is a global local problem: it is a global phenomenon with local environmental and human health impacts, particularly in high-density urban areas. As such, public policies to reduce emissions must be undertaken both at the national and local levels. International co-operation on limiting concentrations and implementing the best emission reduction technologies is essential for countries to put into motion solutions and policy tools to bring down air pollution. Urban planning and transport have a central role to play here.
Air pollution is also strongly linked to another global problem: climate change. This week at the 23rd Conference of the Parties to the UNFCCC (COP23) in Bonn, policymakers face decisions on their level of commitment in combatting climate change. Taking a closer look at its link with air pollution could provide impetus for immediate policy action. It would prevent higher numbers of premature deaths, and have a positive impact on the economy too.
References and links
Safi, Michael “Delhi doctors declare pollution emergency as smog chokes city”, 7 November 2017,The Guardian. See: www.theguardian.com/world/2017/nov/07/delhi-india-declares-pollution-emergency-as-smog-chokes-city?CMP=share_btn_link
OECD (2017), “The Rising Cost of Ambient Air Pollution thus far in the 21st Century: Results from the BRIICS and the OECD Countries”, OECD Environment Working Papers, No. 124: http://dx.doi.org/10.1787/d1b2b844-en
See the latest Global Burden of Disease at http://www.thelancet.com/gbd
Kurt Van Dender, Centre for Tax Policy and Administration
Pricing carbon is one of the surest policy means we know for curbing greenhouse gas emissions and meeting the targets of the Paris Climate Agreement agreed in 2015. Has there been any progress with its implementation since then? Not enough, is the verdict of some of the world’s leading experts.
Some 85% of global emissions are currently not priced, according to a report issued in May 2017 by a High-Level Commission on Carbon Prices, co-chaired by Joseph Stiglitz and Lord Nicholas Stern, both respected figureheads in the fight against climate change. Moreover, about three quarters of the emissions covered by a carbon price are priced below USD 10 per tonne of CO2 (tCO2).
That price is much too low, since according to the report, if we are to achieve the Paris temperature target the explicit carbon-price level should be at least USD 40-80/tCO2 by 2020 and USD 50-100/tCO2 by 2030.
One gap in these numbers is that they do not take into account excise taxes on the likes of transport fuel, heating and energy use more widely, that have virtually the same behavioural impacts as more narrowly defined carbon taxes, and should therefore also lead to reduced emissions.
If these rather commonplace excise taxes on energy use are added into the mix, we can form a broader view of how carbon emissions are currently being priced. To gauge this, we have developed “effective carbon rates”, which are made up of all specific taxes on energy use, carbon taxes, and prices of tradable emission permits. This database, which we presented in our 2016 OECD report on Effective Carbon Rates , calculates effective carbon rates for 41 OECD and G20 countries, covering 80% of global energy use and the associated carbon emissions.
In one sense, the picture that effective carbon rates depict is a little brighter than that presented by Messrs Stiglitz and Stern, as it includes a broader range of taxes, so higher rates. In another and more fundamental sense, the picture actually is a little darker, as effective carbon rates show the enormous size of the challenge we face in battling down greenhouse gas emissions, even when taking a broader view of carbon pricing.
Indeed, according to our database, 60% of emissions from energy use in the 41 countries are currently not priced (compared with 85% in the commission’s report). However, some 78% of emissions are priced at less that EUR 10/tCO2, which is no less discouraging. So while our more comprehensive estimates indicate that carbon pricing is more widespread than the High Level Commission’s report suggests, they nevertheless reinforce the Commission’s main point that carbon pricing still only plays a very limited role, and that we are a far cry from what is required to reach the Paris Agreement objectives.
The High Level Commission estimates that carbon prices should range between EUR 40 and EUR 80/tCO2 in 2020 for the Paris Agreement targets to have a chance of being met. Currently, effective carbon rates are below EUR 40/tCO2 for 93% of emissions, and are below EUR 80/tCO2 for 95% of emissions. Omitting road transport (where excise taxes are relatively high) from the calculation increases these shares to 99%.
In short, almost no emissions from energy use are priced at levels required to keep global temperature increases below 2 degrees Celsius limit, beyond which climate change could spin out of control. The world’s leaders understood the gravity of this prospect by signing up to the Paris Climate Agreement. It is now critical that they take the policy action needed to meet those goals, and that means increasing carbon prices now.
COP23 side event: Carbon pricing for the low-carbon transition, 15 November 2017, Bonn, Germany: http://www.oecd.org/tax/tax-and-environment.htm#COP23-tax-env-event.
More about the OECD at COP23: http://www.oecd.org/environment/cc/cop23.htm.
References and links
High-Level Commission on Carbon Prices (2017), Report of the High-Level Commission on Carbon Prices, World Bank, Washington, DC. License: Creative Commons Attribution CC BY 3.0 IGO, https://static1.squarespace.com/static/54ff9c5ce4b0a53decccfb4c/t/59b7f2409f8dce5316811916/1505227332748/CarbonPricing_FullReport.pdf.
OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264260115-en.
OECD (2017), Investing in Climate, Investing in Growth, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264273528-en.