Impacts of a global carbon price on consumption and value creation

About two-thirds of the national pledges made under the Paris Agreement refer to carbon pricing as one of the measures to reduce greenhouse gas (GHG) emissions. Carbon pricing internalises the costs of climate change, making it part of the economic decision-making process. Carbon pricing thus has the potential to facilitate the decarbonisation of global value chains enabling sustainable economic value creation and growth. Carbon pricing discussions often take a “vertical” view through a specific jurisdiction, company, or sector. However, climate change is a global issue with impacts across all jurisdictions, all companies and all sectors. This study, prepared by Ecofys and The Generation Foundation under the Carbon Pricing Unlocked partnership with inputs from the Norwegian University of Science and Technology and PBL Netherlands Environmental Assessment Agency, provides a “horizontal” perspective on how carbon pricing affects global value chains across regions and sectors. The team analysed GHG productivity: the ratio between the economic value created and the GHG emissions along global value chains. Assuming that carbon pricing revenues are redistributed into the economy in proportion to the value created, the experts also calculated the impact that global carbon price could have on consumer prices. The study highlights what the findings imply for the design of effective carbon pricing policies.