What would be the economic and political consequences across the globe of raising the price of carbon? The world needs energy to thrive and to protect and provide livelihoods. Yet over 83% of global primary energy consumption is attributable to fossil fuels, which are the main source of anthropogenic greenhouse gas (GHG) emissions.1 How can countries that set high emission reduction ambitions, and introduce mechanisms to reach them, prevent the outflow of manufacturing and associated emissions to other countries with lower ambitions? And how can the cost of mitigation be shared across nations at different levels of development?

These tensions are at the heart of the debate leading up to the 26th Conference of Parties (COP26) of the United Nations Framework Convention on Climate Change (UNFCCC) in Glasgow.

Carbon pricing – which is a price paid on carbon dioxide (CO2) and other GHG emissions – is generally agreed to be an effective method to reduce emissions.2 The intent of this report is to analyse the impacts of international carbon pricing scenarios on economies and industries to provide information useful to governments, businesses and civil society in advance of COP26.

Even if countries fulfil their emissions reduction pledges made under the terms of the Paris Agreement, this will not keep global warming below 2°C. The results of the economic modelling show a global price floor for GHG emissions could lead to further reductions and help bridge this gap. The cost in terms of economic activity of a carbon price floor is calculated to be less than 1% of gross domestic product (GDP), and this could be offset by the redistribution of revenues raised from the ICPF and the avoided costs associated with global warming.