The Crucial Role of Carbon Revenue Recycling

In a recent Carbon Pricing Unlocked report, Guidehouse describes how revenue recycling can amplify the mitigation potential of carbon pricing mechanisms

Carbon pricing is being used around the world as an economically efficient method to reduce greenhouse gas emissions. Over the past decade the number of carbon pricing mechanisms implemented has more than doubled, and there is a growing consensus that carbon pricing is fundamental to the transition to a low carbon economy.

Through the Carbon Pricing Unlocked partnership, Guidehouse partnered with The Generation Foundation to produce Raising the Acceptability and Effectiveness of Carbon Pricing: The Crucial Role of Carbon Revenue Recycling. The report examines carbon pricing from a new angle, exploring the role of carbon pricing along value chains up to the end consumer.  

Key findings from the report include:

  • For companies, the most important design element in carbon pricing policy is transparency. Understanding how revenues will be spent is an industry priority, but the majority of governments use carbon revenues as part of their general government spending.

  • Using carbon revenues to support projects in other countries would lead to the highest additional emissions reductions, but this is the approach least deployed by governments and the least popular among industry.

  • There is no silver bullet approach. Governments and industry should look beyond the headline price under a carbon pricing mechanism. They should work together to identify ways to apply the revenue generated to promote climate action in a transparent manner.

“Our research shows the importance of engaging businesses early in the development of carbon pricing schemes to communicate the benefits and ensure the right balance of transparency and flexibility in how revenues are used," said Ian Trim, director at Guidehouse.

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