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Title page

Contents

Acknowledgements 3

Executive summary 4

1. The state of global climate action 8

1.1. Key climate projections show gaps in both ambition and implementation to achieve the objectives of the Paris Agreement 9

1.2. Countries rely on diverse climate policy instruments with momentum building for the use of carbon pricing policies 9

1.3. Resilient low-emission development pathways deliver many benefits and can help promote economic growth, supporting the achievements of various SDGs 13

2. The menu of policy tools 16

2.1. The choice of mitigation instruments is ultimately guided by climate and non-climate goals, multiple market failures, fiscal implications, and other criteria 17

2.2. Decarbonization calls for a package of coordinated and strategically sequenced climate change policies in which carbon pricing can play a central role 18

2.3. Achieving just transitions to a low-carbon economy and maintaining political support requires additional policies 19

3. Carbon pricing metrics 22

3.1. The task force builds on existing metrics introduced by its participating international organizations, leveraging commonalities across the metrics 23

3.2. More granular data are needed to improve the accuracy and coverage of carbon pricing metrics and evaluate the international competitiveness impacts... 25

3.3. Other metrics measure the impact of carbon pricing and other policies on emissions 25

4. Spillover effects of climate policies 30

4.1. A country's climate change policies generate five generic types of cross-border spillovers on other countries with mixed effects on their economic and... 31

4.2. Cost increasing climate policies, such as carbon pricing, generate both positive and negative cross-border spillover effects, depending on their design 32

4.3. Climate policies such as carbon pricing can lead to carbon leakage, which some jurisdictions are looking to limit through the introduction of BCAs 35

4.4. Cost-decreasing climate change policies, such as subsidies to foster decarbonization, generate a mix of positive and negative cross-border spillover effects 38

5. Coordination to maximize positive spillovers and limit negative cross-border impacts 42

5.1. Enhanced international coordination among countries is essential to maximize positive cross-border spillovers and minimize negative spillovers 43

5.2. Developing a common understanding of cross-border spillovers and their impacts, including better evidence on actual leakages, helps countries better... 43

5.3. Greater alignment of carbon intensities and product-specific emission metrics or benchmarks can help reduce compliance costs for firms engaged... 44

5.4. Focused technology dissemination can accelerate the climate transition 46

5.5. Common understandings for implementation of trade-related climate measures can avoid unjustifiable discrimination, excess compliance costs,... 47

6. Coordination to scale up climate action 50

6.1. International organizations help countries raise climate action by supporting the use of climate policies 51

6.2. Modalities for international coordination mechanisms can vary and aim at closing gaps in (1) transparency, (2) implementation and (3) ambition 51

6.3. Further joint work by international organizations can help fill the knowledge gaps identified in this report 55

Table 1.1. Examples of climate mitigation policy instruments 10

Table 3.1. Overview of existing carbon pricing and climate policy impact metrics by international organization, scope, granularity, approach and methodology 28

Table 6.1. Opportunities for coordination to close the transparency, implementation, and ambition gaps 56

Figure 1.1. Policy mix by country 11

Figure 1.2. Trends of climate policy instruments 12

Figure 1.3. Map of carbon taxes and ETSs around the world 12

Figure 1.4. Global greenhouse gas emissions covered by explicit carbon pricing policies 13

Figure 1.5. Prices and coverage across explicit carbon pricing policies 14

Figure 3.1. Carbon pricing instruments and share of greenhouse gas emission by sector 24

Figure 3.2. Methodology for data collection of carbon pricing instruments and calculation and aggregation of carbon pricing metrics 26

Figure 4.1. Changes in total trade for various mitigation scenarios and country groups and the reallocation of export shares across sectors in 2050... 33

Figure 4.2. Cost increases and competitiveness effects of different climate policies 34

Figure 4.3. Top low and lower-medium income countries with the highest share of the EUDR products in total merchandise exports to the eu, by region 35

Figure 4.4. Relative carbon border adjustment mechanism exposure index 39

Boxes

Box 4.1. Steelmaking and fertilizers 40

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