May 06, 2021

On May 6, 2021, the Swedish Ministry of Finance in cooperation with the Coalition of Finance Ministers for Climate Action organized a virtual workshop on carbon pricing, emphasizing in particular the role that carbon taxation and the Carbon Border Adjustment Mechanism (CBAM) proposed by the European Commission can play in the Green Recovery process following the COVID-19 Pandemic. This was the second workshop co-organized by the Swedish Ministry of Finance -- the first one occurred in October 2019 and focused on carbon taxation. Presentations and a summary note from the earlier workshop can be found here.

The workshop was divided into three parts. The first session discussed how to tax carbon to achieve the sustainable development goals and climate targets. It was agreed that a simple carbon tax, applied upstream (where there are less taxpayers to control), with a wide coverage that is non-sectoral, and a tax rate that is considered to be acceptable within the economic context of the country in question, was the most desirable approach to taxing carbon. Such a tax would be capable of raising revenues which are important to recover from the COVID-19 recessionary environment, and lead to a behavioral switch in fossil fuel consumption patterns.

The second session discussed revenue use under a green recovery scenario. It was noted in this session that the pathway to green growth requires consistency in policy administration. Green stimulus packages should ideally include green finance, green procurement, green export credits, and green taxes to steer consumption, and they should be broadly aligned with countries’ NDC commitments. The presenters agreed that the way in which the revenues deriving from a carbon tax are employed in society is extremely important in harnessing long-term popular support for the measure. Therefore, pricing policies should be very well crafted, administered in a transparent way, and follow ample public consultations in order to win popular support.

The third and last session of the day explored the carbon border adjustment mechanism, its use, alternative measures to the employment of a border adjustment, the specific case of the EU CBAM, as well as a novel approach under consideration in Canada. Two reports were discussed in this session. The links are found below