Commission cautious over potential benefits of carbon pricing

Carbon pricing and taxes on financial transactions can help raise government revenues and improve market efficiency, claims a European Commission working paper on innovative financing. The paper identifies both carbon taxation and carbon allowance auctioning under the EU’s Emissions Trading Scheme (ETSⁱ) as two of several innovative ways of raising revenue.

The Commission stresses caution over potential revenues from carbon pricing however, as revenues will inevitably decline as changes in behaviour are established. It will also be important to take into account the interaction between carbon taxation and the EU’s Emission Trading Scheme (ETS). Furthermore, in order to address risks of carbon leakage if key global players do not follow the EU’s example by implementing comparable climate action, the ETS foresees the free allocation of emission allowances to energy-intensive sectors.

The Commission working document on innovative financing can be found here:
http://ec.europa.eu/economy_finance/articles/international/documents/innovative_financing_global_level_sec2010_409en.pdf