Annex- A framework to decarbonise the economy

CO2

A F RA M E WO R K TO D E CA R B O N I S E T H E E CO N O M Y — ANNEX —

Annex. A Framework to Decarbonise the Economy

Filippo Maria D’Arcangelo,filippomaria.darcangelo@oecd.org Ilai Levin,ilai.levin@oecd.org Alessia Pagani, alessia.pagani@oecd.org Mauro Pisu, mauro.pisu@oecd.org Åsa Johansson, asa.johansson@oecd.org

PUBE

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Table of contents Annex A. A brief description of climate policies

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Greenhouse gas tax Emission trading schemes Taxes on polluting goods or activities Abatement subsidies Non-tradable performance standards/certificates Feebates Technology Standards Input Requirements Tradable performance standards and credits Information, certification and voluntary approaches

Annex B. Methods to evaluate the socioeconomic impacts of decarbonisation strategies Using abatement cost estimates to gauge the cost of decarbonising Learning from ex-post empirical evidence on climate policies Effects of climate policies on labour markets The effects of climate policies on competitiveness, trade and FDI

Annex C. Additional supporting material References

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Tables Table B.1. Estimated marginal abatement costs of different policies and technology options Table B.2. Summary of the effect of climate policies on socioeconomic outcomes Table C.1. OECD and G20 countries’ intermediate targets as declared in the NDCs Table C.2. EU countries intermediate targets as declared in the EU Effort Sharing Regulation Table C.3. Considerations for policy scenario formulation for households-related emissions Table C.4. Considerations for policy scenario formulation for industry-related emissions Table C.5. Considerations for policy scenario formulation for agriculture-related emissions Table C.6. Considerations for policy scenario formulation for energy-related emissions Table C.7. Considerations for policy scenario formulation for transport-related emissions

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Figures Figure B.1. An example of a marginal abatement costs curve at the world level Figure B.2. Estimates of sectoral employment effects due to an increase in energy costs for France Figure C.1. Sectoral shares of emissions in OECD and partner countries

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Boxes Box B.1. Methodological issues surrounding marginal abatement cost estimates

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Annex A. A brief description of climate policies

1.

This section describes and expands on the content of Table 5 “Assessment criteria for climate policies”, analysing how each climate policy fares along the assessment criteria: shortterm (i.e. static) minimisation of abatement costs; medium-long term (i.e. dynamic) minimisation of abatement costs; administrative costs; ability to deal with uncertainty; reallocation and distributional concerns; political economy and public acceptability; and fiscal revenues and expenditures.

Greenhouse gas tax 2.

Imposing a price on greenhouse gas (GHG) emissions through a tax proportional to the carbon content of a good or service is a highly cost-effective way to reduce emissions. A broadbased greenhouse gas tax presents a low trade-off between economic activity and pollution, equalising abatement costs across firms and eliciting cost-effective behavioural responses from consumers and producers. A stable and predictable GHG tax also enhances long-term incentives to innovate and deploy low-emission technologies so as to reduce the tax burden.

However, GHG taxes, as they are currently applied in many countries, have a narrow base as they apply to certain sectors, emissions, and fossil fuels (see Chapter 3 in OECD (2019[1]) for a discussion).

3.

One main drawback of the GHG tax concerns, in some cases, high administrative costs, i.e. the cost associated with tax assessment, collection, and enforcement. Upstream GHG taxes applied on fuel imports have low administrative costs as they can be applied to the volume of the fuel. However, for downstream GHG taxes, administrative costs tend to be much higher as the number of agents liable to pay the tax is large (e.g. taxation at the industrial point of emission release). Difficulties in measuring the tax base also raise administrative costs. For instance, methane emissions in animal farming cannot be measured but only roughly estimated from several factors (the animals’ diet, manure storage, use of pasture).

4.

The political and social acceptability of GHG carbon taxes is an additional challenge.

GHG taxes increase the price of products and services and are highly visible, eliciting strong opposition from a large share of the population. Before considering their revenue use, the impact of the tax on prices is likely to be regressive, raising distributional concerns. GHG taxes can also reduce firms’ international competitiveness and engender job losses and stranded assets (in the short term), further reducing the political support for such an instrument.

5.

A predictable carbon path can largely reduce these effects by aligning long-term investments with climate change goals. In principle, compensatory measures can offset GHG taxes’ regressive effect and negative impact on competitiveness. The additional tax revenues GHG taxes would generate could help to fund such compensatory measures. Yet, these measures have proved difficult to design and implement. For instance, in France, since its introduction in 2014, less than a quarter of the carbon tax revenues have been used to finance

4 the green transition or to compensate vulnerable households, and have instead been used mostly to reduce the state budget deficit (OECD, forthcoming[2]).

Emission trading schemes 6.

Emission trading schemes (ETS) set emission caps by issuing pollution permits and allowing for trading them. The forces of supply and demand determine pollution permits’ prices.

Initial allocation of permits can be given out for free instead of auctioning, mostly preserving the incentives to abate emissions and improving significantly the acceptability of ETS (Bowen, 2015[3]). Yet, free allocation can provide an unfair competitive advantage to incumbents when based on past emissions (grandfathering) and recipients might appropriate windfall profits if they can pass-through the permit cost to consumers.

7.

ETS have similar strengths and weaknesses to GHG taxes. The main difference is that ETS are a “quantity” instrument whereas GHG taxes are a “price” instrument. By reducing the emission cap at regular interval, ETS ensure that emissions will decline by a certain amount.

This is an attractive feature as climate targets are often set in terms of emission quantities and these can be clearly communicated to the public. Moreover, governments find it easier to commit to progressive cap reductions than price increases in a GHG tax. However, ETS deal less effectively than GHG taxes with uncertainty over abatement costs as the variability of permits’ prices in the ETS market can blunt efforts to reduce emission. The volatility in permits prices could also discourage long-term investments in abatement technologies.

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ETS usually entail higher administrative costs than GHG taxes. They require a costly infrastructure (i.e. trading platforms), on top of monitoring and enforcement activities. In addition, they impose informational and bureaucratic costs on participants, making them impractical for other than large firms and industrial plants.

9.

Accurate policy design can temper some of the limitations of ETS. For instance, imposing a floor on prices can limit permits’ price volatility (as in the Regional Greenhouse Gas Initiative, a GHG market active is part of the United States). In addition, excessive permits supply can be reduced according to pre-determined rules (e.g. the market stability reserve in the EU ETS).

Taxes on polluting goods or activities 10.

Pricing a proxy for emissions can be an alternative to pricing the GHG content of goods and services. The advantage of this approach compared with ETS and GHG taxes is that it lowers administrative and compliance costs while providing a similar incentive to firms and consumers to abate emissions and innovate. They involve lower administrative costs as taxes apply on the final output, eschewing the need of monitoring the exact emissions. This is one of the reasons why taxes on polluting goods and activities are more widespread than GHG taxes.

They include excise taxes on fuels, extraction activities (as a proxy for fugitive emissions) and land-use change.

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The drawback of taxing polluting goods and activities is the risk that the proxy relates only loosely with actual emissions. For example, taxes on electricity consumption reduce demand but do not encourage the use of renewable resources in electricity generation; taxes on the purchase of vehicles can reduce the number of vehicles but do not encourage using them less or the purchase of low-emitting vehicles.

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Another major weakness of this indirect form of pricing is that they are often motivated by policy objectives other than decarbonisation, such as raising revenues. Their application is often fragmented due to many exemptions (unlike broad-based GHG taxes and ETS).

Abatement subsidies 13.

Abatement subsidies involve payments for reducing emissions below a pre-defined baseline. Subsidies are an efficient instrument to reduce emissions as they equalise firms’ marginal abatement costs and leave firms the choice on how to reduce emissions. Subsidies provide firms with the same incentives to curb emissions as GHG taxes. One main difference is that, unlike GHG taxes, subsidies do not increase firms’ costs. For this reason, they tend to face less opposition than taxes, but they weigh on the public budget.

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Abatement subsidies and GHG tax have different effects on prices and the incentives to relocate production. Abatement subsidies tend to lower output prices, thus supporting production and final consumption beyond what would be the social optimum (i.e. their levels without taxes and subsidies). At the same time, subsidies are less prone to cause carbon leakage because they encourage firms not to relocate production abroad (Fischer, Greaker and Rosendahl, 2012[4]).

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Designing and implementing effective abatement subsidies present challenges.

Measuring abatement efforts requires measuring the reduction in emission with respect to a baseline. The choice of the baseline can favour historical polluters while penalising those firms that were already keeping emissions low before the introduction of the subsidy. Moreover, it can be hard to determine whether the emission reduction is due to the subsidy or other factors.

Therefore, abatement subsidies often target proxies, such as low-carbon products and activities (i.e. subsidies for electric cars), increasing the risk of introducing unwanted market distortions.

For these reasons, abatement subsidies should be time limited and reviewed regularly.

Non-tradable performance standards/certificates 16.

Non-tradable performance and efficiency standards mandate certain qualities and characteristics that products, services and production processes must comply with.

Performance standards require that the pollution originating from a source, such as a manufacturing plant or vehicle, does not exceed pre-specified limits. Energy efficiency standards are a type of performance standard, frequently used for household appliances, vehicles (e.g. fuel economy standards), and buildings (e.g. building codes).

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Performance standards tend to be less cost-effective than GHG taxes and ETS. One drawback is that they do not provide the same incentives to reduce emissions or energy consumption to all firms. Firms that already comply with performance and efficiency standards face no incentive to reduce pollution further whereas non-compliant firms are obliged to do so, even when the private and social costs of doing so are high. Moreover, performance standards elicit behavioural responses only to a very limited extent. For instance, a standard limiting the electricity consumption of an appliance, such as a washing machine, does not encourage reducing the frequency of use. Standards can actually lead to an increase in energy consumption (i.e. rebound effect) because of the lower energy cost of using the appliance.

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Energy efficiency standards tend to be less effective than emission standards in reducing emissions as they target a proxy rather than actual emissions. When they target fuel consumption, efficiency standards are similar to emission standards, but when they are “attribute-based”, for example when they target the weight of a vehicle, they are significantly

6 less effective. Emission standards provide limited incentives to innovate and energy efficiency standards even less so.

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Overall, performance and efficiency standards are less cost-effective than emission pricing schemes in reducing emissions, but they can still play an important role in a comprehensive decarbonisation strategy. In the presence of multiple market and government failures, performance and efficiency standards can complement emission pricing mechanisms and be welfare-enhancing by contributing to lower the carbon price needed to achieve a certain reduction in emissions (Stiglitz, 2019[5]).

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A major advantage of performance standards is that they are easy to implement and their administrative costs are low. Standards can also help address one important drawback of pricing instruments: the non-responsiveness of consumers to prices. This is because standards require little or no behavioural response by consumers to work. Standards can enjoy more political support than pricing instruments as they hide the abatement costs they entail (which can be high). This can help to explain why standards face less political opposition than pricing instruments despite being more regressive in general (Levinson, 2019[6]).

Feebates 21.

Feebates are policy instruments imposing a tax or providing a subsidy on consumption (or production) based on the difference between the emissions and a benchmark. Feebates are mostly used in vehicle sales. They take the form of a proportional fee on vehicles that are more polluting than the benchmark and a proportional rebate on those that are less polluting than the benchmark.

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Feebates relate performance standards in the same way as GHG taxes relate to ETS, in that they are a “price mechanism”, whereas performance standards are a “quantity mechanism”. Feebates equalise incentives across firms to reduce pollution (i.e. by equalising marginal abatement costs) whereas standards provide strong incentives to reduce pollution only to non-compliant firms (Anderson and Sallee, 2016[7]). Overall, evidence suggests that feebates are more cost-effective than standards in some settings, such as vehicle emissions (Durrmeyer and Samano, 2017[8]).

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Another advantage is that, being a price mechanism, feebates deal better than standards with uncertainties over abatement costs. Feebates are usually designed to be revenue-neutral (although this objective is seldom attained (Teusch and Braathen, 2019[9])), but in principle they could raise revenues or distribute net-subsidies by increasing or decreasing the benchmark. One study finds that middle-income consumers benefit from a vehicle feebate at the expense of low and high-income ones, with more progressive effects if a negativebalanced feebate is financed with an equivalent income tax (Durrmeyer, 2018[10]).

Technology Standards 24.

A technology standard (or technology mandate) sets specific requirements for production processes, such as specific abatement technologies or production methods.

Technology standards also include outright bans of materials or techniques, such as the ban in 1990 with the Montreal Protocol of chlorofluorocarbons (a gas once widely used in refrigerators and other industrial and domestic applications).

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On the one hand, technology standards are transparent and relatively easy to monitor and enforce. On the other, like non-tradeable performance standards, they leave little room to

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

7 producers in choosing how to reduce emissions and do not encourage the reduction of emission-intensive output and the switching to less polluting fuels. Also, forcing the adoption of specific technologies can help their diffusion, but this provides no incentive to improve them. It can even reduce incentives to innovate in competing technologies. Moreover, technology standards can raise competition and market-neutrality concerns if they favour firms already using the chosen technology, or if it differentiates by vintage (e.g. including waivers for older plants because the new technology would be too costly). For all these reasons, technology standards though effective in some settings may entail high social and private costs.

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On the other hand, technology standards have low administrative costs. In some circumstances, they may offer the only viable option to abate emissions in a short time.

Technology standards may be advantageous also when frictions, such as asymmetric information, coordination problems or weak responses to prices, hinder the adoption of less polluting technologies.

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Outright bans can be effective and are the best approach when the damages associated with the technology to be banned are so high that their use cannot be justified. This has been the case for chlorofluorocarbons and leaded gasoline. Such bans encouraged innovation in alternative products and processes (hydrofluorocarbons and unleaded gasoline in the example above).

Input Requirements 28.

Input requirements mandate the use of certain intermediates or fuels in production processes. One widespread example are renewables portfolio standards, requiring electricity producers to generate a fraction of their electricity from renewable sources. These requirements are applied in more than 100 jurisdictions, including Belgium, the UK, Poland, Korea, and several US states (REN21, 2017[11]).

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Input requirements are similar to technology standards in that they help to sustain demand for cleaner intermediates and establish unambiguous targets. Similarly to technology standards, they restrict producers’ choices, contributing to high abatements costs, but unlike technology standards they can offer a portfolio of choices rather than one single alternative, contributing to lower abatement costs.

Tradable performance standards and credits 30.

Tradable performance standards oblige participants that are below a pre-defined benchmark to buy certificates from those that are above the same benchmark. As such, tradable performance standards are a more flexible alternative to performance or technological standards and have many aspects in common with an ETS. Examples of tradable standards programmes include white certificates (tradable certificates of a building energy efficiency level) and renewable portfolio standards (tradable certificates of a minimum amount of renewables used by power suppliers). A similar instrument to tradeable standards are baseline-and-credit systems, like the Clean Development Mechanism (CDM) established under the Kyoto Protocol.

In this system, activities reducing emissions below a baseline generate credits that can be sold to participants expecting to exceed it.

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Tradable standards, unlike firm-level standards, have the advantage of imposing an industry-wide requirement rather than a firm-level one. Therefore, they work like an industrywide ETS as they get firms with lower abatement costs to abate more. Tradeable performance standards are generally less effective than an ETS in reducing emissions because they do not

8 increase as much the price for emission-intensive goods (Boom and Dijkstra, 2009[12]) and they put a price on emissions only if emissions are above a pre-defined benchmark (Pizer and Zhang, 2018[13]). Yet, these features support their acceptability by the public.

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By imposing clear benchmarks and expressly focusing on producers, carefully designed tradable performance standards can encourage new technology adoption or innovation (Yeh, Burtraw and Sterner, 2020[14]). On the downside, tradeable standards raise implementation costs and pose specific monitoring challenges, similar to ETS.

Information, certification and voluntary approaches 33.

Rating and labelling requirements, public information and education, training programmes, product certification and award schemes all contribute to reducing informational asymmetries and other market imperfections at the source of negative externalities (OECD, 2015[15]). For example, consumers with a preference for low-carbon goods can face difficulties in discriminating between low and high carbon content goods. Another example concerns households paying little attention to electricity prices or energy efficiency, raising energy consumption.

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Reducing these frictions can be a cost-effective way to complement the policy instruments discussed above so far. For instance, tackling informational asymmetries can lower the level of taxes or subsidies needed to achieve a certain reduction in emissions. Corporate disclosure policies can lead to higher investment in low-carbon assets.

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One main drawback of certification and labelling approaches is that they tend to provide rigid attribute-based categories. This reduces firms’ incentives to abate beyond the requirements need to reach a certain category and can allow firms to appropriate the certification’s benefits by raising prices (Houde, 2018[16]).

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Annex B. Methods to evaluate the socioeconomic impacts of decarbonisation strategies

Using abatement cost estimates to gauge the cost of decarbonising 36.

Marginal Abatement Cost (MAC) curves rely on a mix of engineering and economic data to estimate the costs of reducing GHG emissions with different technologies and policies.

The result of MAC estimates is usually shown on a graph plotting the expected emission reduction of different technologies against the estimated abatement costs, expressed in terms of tonne of CO2 equivalent (Figure B.1). These estimated costs usually also take into consideration the costs involved in changing production techniques, upgrading infrastructure (including investment, operation and upkeep), new-technology learning curves in addition to cost savings factors such as lower fuel use, efficiency enhancements and economies of scale (Hutton, Haller and Bartram, 2007[17]; Goldman Sachs, 2020[18]; Kesicki and Ekins, 2012[19]; Almihoub, Mula and Rahman, 2013[20]). Abatement costs may range from negative (i.e. net savings) to highly costly. Negative abatement costs imply that reducing emissions with these specific technologies and policies will generate economic benefits rather than economic costs.

However, these benefits may be difficult to realise because of non-optimising behaviour of firms and individuals (e.g. myopic behaviour) or transaction costs (e.g. government inefficiencies) (Gillingham and Stock, 2018[21]). In some sectors (such as cement production), abating emissions can be prohibitively expensive given the available technology (Goldman Sachs, 2020[18]).

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Figure B.1. An example of a marginal abatement costs curve at the world level

Note: the blocks represent different policy and technology options belonging to five broad categories (see legend); the height of each block represents the average net cost of abating an additional unit of CO2 expressed in USD per ton of CO2 equivalent; the width of each block represents the abatement potential, compared to business-as-usual; the area of each block represents the total abatement cost of the respective option. According to the source estimates, at the world level there are above 50 tnCO2 equivalent in need of abatement, but the emission equivalents not plotted in the graph are unabatable given current technologies.

Source: (Goldman Sachs, 2020[18])

37.

Existing MAC estimates vary considerably across technical and policy options, between and within countries (Productivity Commission, Australian Government, 2011[22]). They are also likely to evolve over time in ways that are difficult to predict (NEA, 2019[23]) (Box B.1). Indeed, a recent meta-analysis surveying 50 MAC studies from the past decade finds that the variation in MAC estimates is significant (Gillingham and Stock (2018[21]), Table B.1). This calls for caution in interpreting MAC estimates and for the need for country- and context-specific MAC assessments.

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Table B.1. Estimated marginal abatement costs of different policies and technology options Current estimate of an assessed tool’s economic cost over its lifetime Policy Behavioural Energy Efficiency Corn starch ethanol (U.S.) Renewable Portfolio Standards Reforestation Wind Energy Subsidies Clean Power Plan Gasoline Tax Methane Flaring Regulation Reducing Federal Coal Leasing CAFE Standards Agricultural Emissions Policies National Clean Energy Standard Soil Management Livestock Management Policies Concentrating Solar Power Expansion (China & India) Renewable Fuel Subsidies Low Carbon Fuel Standard Solar PV Subsidies Biodiesel Energy Efficiency Programs (China) Cash for Clunkers Weatherization Assistance Program Dedicated Battery Electric Vehicle Subsidy

Estimate ($2017/ton CO2e) -190 -18 – +310 0-190 1-10 2-260 11 18-47 20 33-68 48-310 50-65 51-110 57 71 100 100 100-2900 140-2100 150-420 250-300 270-420 350 350-640

Note: Rounded to two significant digits; all estimates were converted to 2017 dollars for comparability by the authors; CO2e denotes conversion of tons of non-CO2 GHG to their CO2-equivalent. For a full list of sources and methods, see Table A-1 in the appendix of the source paper (Gillingham and Stock, 2018[21]). The study focuses on economic costs rather than just engineering costs. This is similar to the United Kingdom’s Department of Energy and Climate Change’s study (2011[24]) but different from other private-sector estimates (including Mckinsey & Company (2010[25]) and Goldman Sachs (2020[18])).

Source: (Gillingham and Stock, 2018[21]).

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Box B.1. Methodological issues surrounding marginal abatement cost estimates Marginal abatement costs estimates are uncertain because of different methodological issues. The most important ones include: 

Behavioural responses. For example, changes in energy prices may induce changes in consumption habits, possibly causing rebound effects leading to increased energy consumption due to improvements in energy efficiency (e.g. heating and transport) (Kesicki and Ekins, 2012[19]).



Technological evolution MAC estimates omit an adequate assessment of technological developments and spillovers that may reduce future costs (Kesicki and Ekins, 2012[19]; Gillingham and Stock, 2018[21]). Contrarily, some other abatement technologies may have already gone through the stage of low-hanging fruits, meaning MAC will rise as CO 2 abatement increases.



Non-monetised impacts of abatement tools on firms and households (Department of Energy & Climate Change, UK Government, 2011[24]). A negative example is that firms adopting lowcarbon technologies could face a competitiveness loss in international markets; but on the other hand, air pollution reduction can create health co-benefits (Woodcock et al., 2009[26]).



Synergies among different policy and technology options. For example, the source of electricity used to charge electric vehicles (EVs) largely determines their environmental impact (MIT, 2019[27]; Energy Systems Division, Argonne National Laboratory, 2009 [28]), implying that prioritising grid decarbonisation prior to supporting EV purchase would likely result in greater overall future emission reductions.

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General equilibrium effects. A change in the global abatement level is likely to affect energy prices, therefore influencing national MAC curves (Klepper and Peterson, 2006[29]).

Learning from ex-post empirical evidence on climate policies1 38.

Referring to ex-post evaluations of past experiences in comparable settings and drawing from the evidence provided by the empirical economic literature provides important insights on the expected outcomes of a policy. Table B.1 provides a summary of the empirical evidence discussed in this section.

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The OECD conduces extensively empirical evaluations of economic effects of environmental policies, leveraging firm and household micro data. A recent book (OECD, 2021[58]) provides a critical assessment of this research.

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Table B.2. Summary of the effect of climate policies on socioeconomic outcomes Policies

Emission pricing and other incentivebased instruments

Regulations, standards, and hybrid instruments

Information and voluntary approaches

Impact on Labour

Competitiveness

Trade

FDI

Innovation and technology adoption

Mixed, depending on firm/industry characteristics and timeframe ‒ Higher firm energy / emission / capital intensity ‒ Higher policy stringency ‒ Labour market rigidities (skills, geographical) ‒ Trade exposure ‒ Medium/large firms, and some small firms may exit the market  Small firms that remain in the market  Low emission intensity firms  Long term overall (consequential to labour market restructuring) Negative, but depending on specific instrument and industry ‒ Higher firm emission intensity  Low emission intensity firms  Energy efficiency standards for new buildings  Emission performance standards for new passenger cars / light commercial vehicles Negligible, possible small positive effect  Firms introducing green-labelled products improve profitability, hence allowing expansion

Mixed  Technologically advanced countries and firms can increase productivity  Firms that can passthrough costs are less affected

Small increase in imports  Compensations (e.g. free allowances) reduce the trade effect

Small increase in outward FDI  Industries with low entry costs and low capital intensity  Persistent policy changes have a larger effect

Positive  High emitters increase patenting activity  Geographic and industry spillovers increase the effect

‒ EITE industries more likely to lose competitiveness ‒ Small and less advanced firms are more affected

Mixed effects on exports  Firms that increase competitiveness/market share also increase exports  Industries with low energy intensity might increase exports

‒ Firms and industries with high transport costs or that benefit from domestic agglomeration economies

Small negative effect  More productive firms and firms with better management are less or positively affected ‒ Smaller and unproductive firms lose more competitiveness

Negligible at current levels of ambition

Negligible at current levels of ambition

Positive  Flexible performance standards perform better than technology standards ‒ Technology adoption might be more pronounced than emission pricing, but its quality is lower

Small positive effect  Firms introducing greenlabelled products improve profitability

Negligible, small effect on exports

Negligible

Positive  Can induce better internal resource management practices

positive

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Effects of climate policies on labour markets 39.

The effects of decarbonisation on employment differ in the short and long terms: 

In the short-medium term, job losses from decarbonising the economy are heterogeneous across industries and types of workers, but on aggregate they tend to be small (Dechezleprêtre, Nachtigall and Stadler, 2020[30]; Dussaux, 2020[31]; Marin and Vona, 2019[32]; Metcalf and Stock, 2020[33]). The most adversely affected industries are those involved in or with tight links to energy production (e.g. electricity production and mining and fossil fuel supply), which employ directly about 40 million people around the world (IEA, 2020[34]). These are capital intensive industries. Decarbonisation policies could also temporarily decrease the employment of energy intensive industries. Figure B.2 shows estimates for France.



In the long term, jobs in high emission-intensive firms and sectors will give way to jobs in lowemission intensive firms and industries. This process of reallocation involves economy-wide adjustments likely to be associated with economic growth, innovation, and net job creation (Fankhaeser, Sehlleier and Stern, 2008[35]; Popp et al., 2020[36]). At this stage, workers will have moved from exiting or contracting firms and sectors to new or expanding ones, meaning that short and medium-term employment losses are likely largely temporary (Dechezleprêtre, Nachtigall and Stadler, 2020[30]).

40.

As with other structural changes in an economy, the functioning of the labour market mediates the employment effects of climate policies. Labour market rigidities may fundamentally obstruct the structural adjustments required for the reallocation of labour, potentially causing an overall decline in employment (OECD, 2012[37]; OECD, 2012[38]). This includes, for example, real wage rigidities; low geographical or sectoral mobility; and the need to upgrade workers’ skills (Babiker and Eckaus, 2007[39]). The presence of geographical clusters of emitting industries, such as Estonia’s oil shale or Germany’s coal mining regions, pose an additional challenge. In addition, increasingly stringent climate policies are likely to have a negative effect on employment (Dechezleprêtre, Nachtigall and Stadler, 2020[30]; Walker, 2011[40]).

Figure B.2. Estimates of sectoral employment effects due to an increase in energy costs for France Change in total employment for a 10% increase in energy cost 4

3

% Change

2

1

0

-1

-2

-3

Change in workers for a 10% increase in energy cost

Note: the confidence intervals (95%) are estimated by a separate OLS regression.

Source: Adapted from (Dussaux, 2020[31])

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 15 The effects of climate policies on competitiveness, trade and FDI 41.

Climate policies have two countervailing effects on firms’ competitiveness. On the one hand, the increased compliance cost of most climate policies may reduce firms' competitiveness. This effect will be larger in industries that face high abatement costs and stronger exposure to foreign competition. On the other hand, productivity can increase in response to tighter climate policies as they can provide firms with incentives to innovate and adjust productive processes in a way that would not have otherwise happened.

42.

A tightening of environmental policy at the country level is likely to lead to a positive short-term increase in productivity of the most technologically advanced firms and industries (Lanoie et al., 2011[41]).

The largest, more productive, and better managed firms are likely to respond to more stringent policies more effectively and thus be able to raise their productivity and gain higher market shares (Albrizio, Kozluk and Zipperer, 2017[42]; Dechezleprêtre et al., 2019[43]). In contrast, the smallest and less productive firms suffer from a decline in productivity, profitability or output as a result of tighter environmental regulation (ILO, 2010[44]; Martin, Muûls and Wagner, 2016[45]; Clay et al., 2018[46]; Dechezleprêtre et al., 2019[43]).

Firms in a position to pass-through compliance costs to consumers can limit the negative impact of climate policy on profits and possibly benefit from compensatory measures, such as the free allocation of allowances in the ETS (Bushnell, Chong and Mansur, 2013[47]).

43.

Emission pricing can have a more positive (or less negative) effect on productivity than non-market instruments, such as air quality standards and subsidies. This is because explicit price signals provide firms with higher flexibility in the abatement process and allow them to choose either the most suitable technology solution or the timing of the adjustment (Dechezleprêtre et al., 2019[43]).

44.

Climate policies can shift production to countries with laxer policies through an increase in compliance costs.2 Empirical studies have investigated the presence of international effects of climate policies along three main channels: trade flows, foreign direct investments (FDIs), and production shifts between subsidiaries of multinational enterprises. At the country level, estimates on trade flows point to a positive but small effect on imports (Aldy and Pizer, 2015[48]; Levinson and Taylor, 2008[49]) or no effect (Naegele and Zaklan, 2019[50]). Similarly, past experiences show that climate policies have some limited positive effect on outward FDIs (Wagner and Timmins, 2008[51]; Garsous and Kozluk, 2017[52]), while possibly also reducing inward FDIs (Millimet and Roy, 2015[53]). Overall small or negligible effects on trade flows and FDIs sometimes hide large industry differences, with few exposed industries experiencing larger effects (Garsous, Kozluk and Dlugosch, 2020[54]). Cross-border shifts in both production and capital are more prevalent within-firm, reflecting the fact that multinational enterprises might face lower barriers to adjust internationally (Hanna, 2010[55]; Dechezleprêtre et al., 2021[56]).

45.

Greater trade openness and the presence of partners that are geographically, culturally and institutionally close decreases trade costs and reduce barriers to shift production abroad, thus causing comparatively larger trade effects of climate policies. By contrast, high import duties, capital-intensiveness of exposed sectors, few multinational firms, and distant partners with lax environmental regulation (‘pollution havens’) are associated with lower trade effects of climate policies. Hence, countries contemplating policies in sectors characterised by globally traded goods, such as agriculture and some manufacturing industries, can expect larger trade shifts than countries targeting sectors with goods that are difficult to trade, such as the residential sector or local transport.

2

This international aspect is especially relevant because if the increase in foreign production causes an increase in overall emissions, a phenomenon known as emission leakage, it undermines the effectiveness of domestic climatemitigation policies (Copeland and Taylor, 2003[57]).

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

16 

Annex C. Additional supporting material Table C.1. OECD and G20 countries’ intermediate targets as declared in the NDCs Country ARG AUS BRA

Unconditional target(s)

Target year

Absolute level of emissions limited to 359 MtCO2e (incl. LULUCF) -26/28% emissions with a 2005 base year (incl. LULUCF) -43% emissions with a 2005 base year (incl. LULUCF) -50% emissions with a 2005 base year (incl. LULUCF) At least -40-45% emissions with a 2005 base year (incl. LULUCF) At least -35% with a 1990 base year (excl. LULUCF) At least -50% with a 1990 base year (excl. LULUCF) Absolute level of emissions limited to 95MtCO2e (excl. LULUCF); GHG emission budget limited to 1,100 MtCO2e (excl. LULUCF); Peak of emissions by 2025 Over -65% CO2 emissions per unit of GDP with a 2005 base year; Peak of emissions before 2030; +25% non-fossil fuels in primary energy consumption; +6B cubic meters of forest stock volume with respect to 2005; +1.2B kW of installed capacity of wind and solar power Absolute level of emissions limited to 169.44 MtCO2e (incl. LULUCF) Maximum absolute net emissions of 9.11 MtCO2e (incl. LULUCF) Cumulative emissions budget between 2021 and 2030 of 106.53 MtCO2e incl. LULUCF At least -68% emissions with a 1990 base year (including LULUCF) At least -55% emissions with a 1990 base year -46% emissions with a 2013 base year (incl. LULUCF) -24.4% with a 2017 base year or 709.1 MtCO2e (including LULUCF) -29% with respect to BAU

2030 2030 2025 2030 2030 2025 2030 2030

-33-35% emissions intensity of GDP with a 2005 base year

2030

ISR MEX

-27% with a 2015 base year, to a level of no more than 58 MtCO2e -22% emissions with respect to BAU

2030 2030

NOR

At least -50% and towards -55% emissions with a 1990 base year (incl.

LULUCF) -50% emissions with a 2005 base year (incl. LULUCF) Limiting emissions to up to 70% emissions with a 1990 base year incl.

LULUCF (subject to absorbing capacity of forests)

2030

CAN CHE CHL

CHN

COL CRI

GBR EU JPN KOR IDN IND

NZL RUS SAU

USA ZAF

Up to -45% emissions with a 2016 base year (under international financial and technological support)

2030

2030 2030

2030 2030 2030 2030 2030

-41% with respect to BAU (under international support) 40% of non-fossil share of cumulative power generation capacity (under transfer of technology and low-cost international finance, including from GCF) -36% emissions with respect to BAU (under provision of financial, technical, technological, and capacity-building support)

2030 2030 2030

-50/52% emissions with a 2005 base year (incl. LULUCF) Absolute value of 398-510 MtCO2e (incl. LULUCF) Absolute value of 350-420 MtCO2e (incl. LULUCF)

Conditional target(s)

-278 MtCO2e with respect to BAU (under condition that it does not create economic damages)

2030 2025 2030

Note: Targets declared in the Second Round of NDCs as of November 2021. MtCO2e are million tons of CO2 equivalent. LULUCF is land use, land use change and forestry. BAU is business as usual.

Source: UNFCCC.

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

 17

Table C.2. EU countries intermediate targets as declared in the EU Effort Sharing Regulation Emission reduction targets in non-EU ETS sectors1, by 2030 with a 2005 base year Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Lithuania Luxembourg Latvia Malta Netherlands Poland Portugal Romania Slovak Republic Slovenia Spain Sweden

-36% -35% -0% -7% -24% -14% -39% -13% -39% -37% -38% -16% -7% -30% -33% -9% -40% -6% -19% -36% -7% -17% -2% -12% -15% -26% -40%

Note: The EU Effort Sharing Regulation (EFR) sets binding GHG targets for the sectors that are not covered by the EU emission trading system (EU ETS), i.e. transport (excluding aviation), buildings (heating and cooling), agriculture (non-CO2 emissions only) and waste.

Source: Official Journal of the European Union.

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

18 

Table C.3. Considerations for policy scenario formulation for households-related emissions Direct emissions (Scope 1)

Indirect emissions through purchase of electricity (Scope 2)

All other indirect emissions (Scope 3)

Policy instruments (examples)

Challenges to emissions reduction policies

Potential instruments to address the challenges

-Gas, coal, oil (heating/cooling, cooking, hot water consumption) -Transportation with owned vehicles

- Purchased electricity, steam or heat: (e.g. for lighting, heating devices)

The supply chain of all goods and services consumed: food, recreation and leisure, education, medical service etc.

Notable areas: - Final consumption of goods and services -Food waste/recycling and compose - Meat consumption - Owning pets - Transportation with non-owned vehicles (e.g. public ones)

- GHG taxes - Energy efficiency standards (e.g. building energy conservation, buildings/household appliance performance standards, vehicle emission standards, biofuel content in fuels) - Saving/green mechanisms: renewable energy sources; energy efficiency improvements installed (e.g. solar panels) - Public subsidies to energy efficiency investments and public transport - Feebates vis-a-vis consumption (e.g. less waste produced by household/apartment, less meat consumption, building rewards with lower town tax for the residents) - Tools of behavioural economics and nudges to encourage a more environmentally friendly household behaviour (e.g. awareness campaigns / educational programs, promotion of energy communities, real-time pricing)

- Increase of relative prices of electricity and heating, thereby inducing a greater effect on lowerincome households -Regressive reforms (e.g. reduction of energy subsidies) can be perceived as unfair - Energy efficiency standards, such as building insulation, may induce high renovation costs - Behaviour inertia (short-lived or no effect of public campaigns / educational programs)

-Tax revenue recycling particularly targeting highly affected households -Policy scheme design: phased-in, transparent and gradual policy stringency increases (e.g. carbon price increases), allowing households to adjust - Process of policymaking: deliberative practices

Note: Scope 1 emissions consist of all direct emissions resulting from the activities of a household / organization / firm or that are under their control. Scope 2 emissions consist of indirect emissions resulting from purchased electricity. Scope 3 emissions consist of all indirect emissions not included in scope 2, and are associated with actions such as business travelling, waste and water management, and firms’ value chains.

Source: Authors’ elaboration

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

 19

Table C.4. Considerations for policy scenario formulation for industry-related emissions Direct emissions (Scope 1)

-Burning of fossil fuel for power or heat -Leaks from industrial processes/ equipment (e.g. chemical reactions during the production of chemicals/ iron/steel/cement, natural gas and petroleum systems) -Business travel and transportation with owned means/vehicles

Indirect emissions through purchase of electricity (Scope 2)

All other indirect emissions (Scope 3)

Policy instruments (examples)

Challenges to emissions reduction policies

Potential instruments to address the challenges

-Purchased electricity (for facilities / machinery, heating/steam)

The supply chain of goods and services produced and sold (from purchase of raw materials to the enduse by consumers, disposal) - Purchased goods and services and capital goods (suppliers emissions) - Upstream and downstream transportation and distribution of goods produced - Disposal of waste generated in operations - Business travel with not-owned means and employees commuting - Use of sold products - End-of-life treatment of sold products

- Active environmental technology-support policies (e.g. energy abating, process efficiency, CCUS, tax incentives, subsidies, direct spending) - GHG taxes and fuel taxes - ETS - Feebates - Circular economy policies: e.g. extended policy responsibility (EPR), virgin material taxes, landfill taxes, cap-and-trade and pay-as-you-go schemes, product standards as recycled content standards, deposit-refund systems, awareness campaigns, labelling requirements, ecodesign mandates - Promoting recycling practices (production of industrial products from recycled/ renewable materials): e.g. investment in recycling infrastructure, garbage pickup schemes and infrastructure.

- Carbon leakage and competitiveness losses, particularly in the case of unilateral actions - High administrative costs - Short-term adverse effects on trade, employment, plant location, and productivity - Potential lack of firm investment in relevant innovation - Industry counterlobbying and campaigning - Energy sector leveraged resistance to reforms due to it being an essential service (and a natural monopoly in many countries)

- Compensations or border carbon adjustments to limit carbon leakage - Subsidies to environmental plans, programs and R&D, which may ultimately lead to a decrease in renewable energy prices -Educational / public knowledge and awareness campaigns -Voluntary programs by businesses in collaboration with / sponsorship of governments (incentivized by gov. support, e.g. rewards, recognition, technical assistance & training, information sharing) - Phased-in, transparent and gradual policy stringency increases (e.g. carbon price increases), allowing firms to adjust - Process of policymaking: deliberative practices

Buildings: -White certificates -Energy Performance Standards -Efficiency standards

Note: Scope 1 emissions consist of all direct emissions resulting from the activities of a household / organization / firm or that are under their control. Scope 2 emissions consist of indirect emissions resulting from purchased electricity. Scope 3 emissions consist of all indirect emissions not included in scope 2, and are associated with actions such as business travelling, waste and water management, and firms’ value chains; Source: Authors’ elaboration.

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

20 

Table C.5. Considerations for policy scenario formulation for agriculture-related emissions Direct emissions (Scope 1)

- Enteric fermentation - Manure management - Synthetic fertilisers - Open burning of biomass (crops residues left on fields)Rice cultivation - Composting of organic waste (livestock waste, crop residues) - Use of mobile and stationary machinery to perform agricultural activities: *tilling, sowing, harvesting, milling and irrigation *tractors, fishing vessels etc.

Indirect emissions through purchase of electricity (Scope 2) Purchased energy to generate electricity

All other indirect emissions (Scope 3)

Policy instruments (examples)

Challenges to emissions reduction policies

-Feed production and processing -Upstream (and downstream) transportation of goods produced -Refrigeration and airconditioning

Supply side: - GHG tax on livestock/cultures/fertilisers emissions -Investments and government grants in R&D / price mechanisms to incentivize emissionreducing agricultural emissions: improvement of crop management (e.g. cover crops) and grazing lands practices (e.g. rotational grazing on pasture), improvement of fertiliser use, conservation tillage, rotational grazing and alternation of forage composition), use of anaerobic digester and windbreaks systems, restoration of degraded lands and cultivated organic soils - Government incentives for early adopters of innovative land use systems - Formal system of recognition of farms’ mitigation efforts

- Time consuming, expensive and labour intensive agricultural practices that may require extra technical knowledge - Potential increase in use of herbicides and pest threats - Changes in consumption behaviour difficult to achieve in the short/medium run - Difficulty in precisely measuring agricultural emissions - Potential increase in emissions through food imports if local food production decreases because of a too high carbon tax - Competitiveness loss of farmers in the global market - Path-dependency in agricultural practice (e.g. progressive loss of knowhow in alternative practices) - Deliberate spread of biased or wrong information by interest groups, aiming to influence public opinion

Demand side: *for end-of-value-chain demand management policies refer to the households table

Potential instruments to address the challenges

- Rebates on carbon taxes and other compensations - Investments/R&D to improve the tools for estimating and benchmarking farms’ emissions - Governing principles for industry-funded research, aiming to avoid dissemination of biased information (without stopping the funding altogether) - Process of policymaking: deliberative practices

Note: Scope 1 emissions consist of all direct emissions resulting from the activities of a household / organization / firm or that are under their control. Scope 2 emissions consist of indirect emissions resulting from purchased electricity. Scope 3 emissions consist of all indirect emissions not included in scope 2, and are associated with actions such as business travelling, waste and water management, and firms’ value chains.

Source: Authors’ elaboration.

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

 21

Table C.6. Considerations for policy scenario formulation for energy-related emissions Direct emissions (Scope 1)

Indirect emissions through purchase of electricity (Scope 2)

All other indirect emissions (Scope 3)

Policy instruments (examples)

Challenges to emissions reduction policies

Potential instruments to address the challenges

- Burning of fossil fuel for power or heat - Leaks from industrial processes / equipment (e.g. natural gas and petroleum systems, chemical reactions during the production of chemicals/ iron/steel/cement)

Purchased energy to generate electricity

The supply chain of power generation services (purchase of equipment, disposal of waste)

- Renewable energy tradable certificates - Renewable energy standards - Carbon taxes - ETS systems - Fossil Fuel taxes and charges - Net metering - Feed-in-tariffs/premiums - Direct Green power purchasing - Efficiency standards -Active environmental technology-support policies: tax incentives, subsidies, direct spending (e.g. on public transport) - Shifting power generation lo lower-emitting plants (including nuclear and renewable sources), via investment in infrastructure & technology, regulation and incentives - Regulation to promote cogeneration of heat and power (utilisation of heating output in power generation for domestic / industrial use)

- System and dispatching costs from nonprogrammable RES - Technological constraints on the development of lesser-GHG-emitting power generation methods - Financing challenges vis-à-vis the development and installation of renewable power generation infrastructure, especially in the fiscally constrained aftermath of the pandemic - Carbon leakage and competitiveness losses, particularly in the case of unilateral actions.

- High administrative costs - Short-term adverse effects on trade, employment, plant location, and productivity - Counter-lobbying and campaigning (especially in the context of organized work) - Political and social concerns the electricity price could increase

- Compensations or border carbon adjustments, limiting reallocation of energy generation plants to countries with less stringent policies - Subsidies to environmental plans, programs and R&D, which may ultimately lead to a decrease in renewable energy prices - Educational / public knowledge and awareness campaigns - Process of policymaking: deliberative practices

Note: Scope 1 emissions consist of all direct emissions resulting from the activities of a household / organization / firm or that are under their control. Scope 2 emissions consist of indirect emissions resulting from purchased electricity. Scope 3 emissions consist of all indirect emissions not included in scope 2, and are associated with actions such as business travelling, waste and water management, and firms’ value chains.

Source: Authors’ elaboration.

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

22 

Table C.7. Considerations for policy scenario formulation for transport-related emissions Direct emissions (Scope 1)

Indirect emissions through purchase of electricity (Scope 2)

All other indirect emissions (Scope 3)

Policy instruments (examples)

Challenges to emissions reduction policies

Potential instruments to address the challenges

- Burning of petrol, gasoline and diesel (tank-to-wheel emissions): passenger cars, light-duty trucks; freight trucks; trains; commercial aircraft; ships and boats.

-Purchased energy to generate electricity (emphasis on electric cars)

- Construction of infrastructures - Manufacturing of vehicles -Provision and distribution of fuel (wheel-totanks emissions)

- Fuel taxes - Investments in public transport, walking and cycling infrastructures - New sustainable urban planning - Subsidies and regulations to incentivize investments in energy intensity reduction (e.g. improvement of engine performance, lightweight materials and increase of freight load) - Purchase subsidies of low-carbon fuels and EVs to reduce fuels' carbon intensity - Investments in ICT, intensification of urban landscapes and restructuring of freight logistic systems to reduce number of necessary journeys; - Tax reduction/subsidies for businesses that invest in low-carbon modes (rail/waterborne) - Standards (e.g. CAFE (Corporate Average Fuel Economy): a yearly maximum fuel consumption value for land vehicles in the USA

- Slow turnover of vehicle stocks and infrastructure - High investment costs - Limited impact of a carbon price on petrol fuel already heavily taxed - Expansion of urban areas - Projected increase in global trade - Slow improvement rates of aircrafts because of their long life and limited fuelswitching options (only biofuel) - Consumption inequality because of higher transport prices - Slow changes in consumer and businesses behaviour - Growth in demand for faster transport modes

- Mobility policies - R&D investments - Health and safety policies - Labour policies including smart-working - Stable pricing policies - Education policies to encourage behavioural changes and social acceptance - Process of policymaking: deliberative practices

Note: Scope 1 emissions consist of all direct emissions resulting from the activities of a household / organization / firm or that are under their control. Scope 2 emissions consist of indirect emissions resulting from purchased electricity. Scope 3 emissions consist of all indirect emissions not included in scope 2, and are associated with actions such as business travelling, waste and water management, and firms’ value chains.

Source: Authors’ elaboration.

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

 23

Figure C.1. Sectoral shares of emissions in OECD and partner countries GHG emissions share (excluding land use, land-use change and forestry) Argentina, 2014

Australia, 2019 Other 10%

Agriculture 13%

Residential 4% Industrial processes 6%

Agriculture 31%

Waste 2% Transport 18% Energy 60% Energy 79% Industrial processes 5%

Waste 4%

Manufacturing 8% Energy Industries 39%

Austria, 2019 Residential 11%

Other -1%

Belgium, 2019 Other 1%

Agriculture 9%

Agriculture 8%

Residential 21% Industrial processes 17%

Industrial processes 21%

Waste 1%

Transport 31%

Energy 69%

Energy 74% Waste 2% Transport 22%

Energy Industries 18%

Energy Industries 13% Manufacturing 13%

Manufacturing 12%

Brazil, 2016 Residential 5%

Canada, 2019

Other 2%

Other 7% Residential 13%

Transport 20%

Agriculture 8% Industrial processes 7% Waste 4%

Agriculture 43% Energy 42% Energy 81% Manufacturing 7%

Energy Industries 26%

Transport 26% Energy Industries 8% Waste 6%

Industrial processes 9%

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

Manufacturing 9%

24  Chile, 2018 Other 8%

China, 2014 Other 5%

Agriculture 11%

Residential 5%

Industrial processes 6%

Agriculture 7% Industrial processes 14%

Transport 7%

Waste 6%

Transport 25%

Waste 1% Energy 77%

Energy 78%

Manufacturing 28%

Energy Industries 30%

Manufacturing 14%

Energy Industries 33%

India, 2016

Colombia, 2014 Other 10%

Residential 8% Agriculture 29%

Other 1% Agriculture 14%

Transport 10% Industrial processes 8%

Transport 19%

Waste 3% Manufacturing 14%

Energy 55%

Energy 75%

Industrial processes 7% Manufacturing 10% Waste 10% Energy Industries 42%

Energy Industries 15%

Ireland, 2019

Indonesia, 2016 Residential 15%

Agriculture 13%

Other 0%

Industrial processes 6%

Waste 11%

Agriculture 34%

Transport 20%

Energy 70%

Energy 59%

Industrial processes 5%

Manufacturing 8%

Waste 2% Energy Industries 16%

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

 25 Czech Republic, 2019 Residential 10%

Other 3%

Denmark, 2019

Agriculture 7%

Residential 11%

Other 1%

Industrial processes 13%

Transport 15%

Agriculture 24%

Waste 4% Transport 29%

Energy 76%

Industrial processes 4%

Energy 69%

Waste 3% Manufacturing 8%

Energy Industries 40%

Estonia, 2019 Residential 6% Other 0%

Transport 17%

Energy Industries 20%

Manufacturing 8%

Finland, 2019 Agriculture 10% Industrial processes 4%

Residential 7%

Other 2% Agriculture 13%

Waste 2%

Industrial processes 10% Transport 21% Waste 3%

Manufacturing 5% Energy 84%

Energy 74%

Manufacturing 13% Energy Industries 31%

Energy Industries 56%

France, 2019

Germany, 2019 Other 1%

Other 1% Residential 17%

Agriculture 16%

Agriculture 8% Industrial processes 8%

Residential 16%

Waste 1% Industrial processes 11% Transport 20%

Energy 68% Waste 4%

Energy 84%

Transport 30% Energy Industries 9% Manufacturing 12%

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

Manufacturing 15%

Energy Industries 31%

26  Greece, 2019 Residential 7%

Other 1%

Hungary, 2019 Other 3%

Agriculture 9%

Agriculture 11%

Residential 19% Industrial processes 14%

Industrial processes 12%

Transport 21%

Waste 5%

Waste 6% Energy 71%

Energy 72%

Manufacturing 5%

Transport 23% Energy Industries 19% Energy Industries 37%

Manufacturing 8%

Iceland, 2019

Israel, 2018 Other 1% Agriculture 3% Industrial processes 9%

Other 3% Agriculture 13%

Residential 12%

Transport 24% Waste 8%

Energy 39% Transport 22%

Energy 80%

Manufacturing 8% Industrial processes 43%

Manufacturing 2% Waste 5%

Energy Industries 47%

Italy, 2019 Other 2% Residential 20%

Agriculture 7%

Japan, 2019 Industrial processes 8%

Residential 12%

Agriculture 3% Industrial processes 8% Waste 2%

Waste 4% Transport 16%

Energy 81%

Energy 87% Energy Industries 22%

Energy Industries 37%

Transport 25%

Manufacturing 22% Manufacturing 12%

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

 27 Latvia, 2019

Korea, 2018 Agriculture 3% Industrial processes 8% Waste 2%

Other 8%

Other 1% Residential 14%

Agriculture 20%

Transport 13%

Industrial processes 8% Energy 67%

Energy 87% Transport 30%

Waste 5%

Energy Industries 40%

Manufacturing 26% Energy Industries 16%

Manufacturing 6%

Lithuania, 2019

Luxembourg, 2019

Other 3% Residential 7% Agriculture 21%

Residential 16%

Agriculture 7% Industrial processes 6% Waste 1% Energy Industries 2% Manufacturing 11%

Transport 31%

Energy 58% Energy 86%

Industrial processes 17%

Transport 57%

Waste 4%

Manufacturing 6%

Energy Industries 11%

Mexico, 2015 Residential 12%

Netherlands, 2019 Other 1% Agriculture 15%

Residential 18%

Agriculture 10% Industrial processes 5%

Waste 2%

Industrial processes 8% Transport 24% Energy 71%

Waste 6% Transport 17%

Energy 83% Energy Industries 32%

Manufacturing 9%

Energy Industries 26%

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

Manufacturing 15%

28  New Zealand, 2019

Norway, 2019 Other 5% Residential 6%

Agriculture 9%

Residential 4%

Industrial processes 18%

Other 2%

Transport 20%

Transport 24%

Energy 42% Energy 71%

Agriculture 48%

Waste 2% Manufacturing 9%

Energy Industries 7% Waste 4% Industrial processes 6%

Manufacturing 6% Energy Industries 30%

OECD, 2019 Other 5% Residential 11%

Poland, 2019 Other 6%

Agriculture 10%

Industrial processes 7%

Residential 13%

Agriculture 8% Industrial processes 6% Waste 3%

Waste 3%

Energy 80%

Transport 24%

Energy 82%

Transport 17%

Energy Industries 28%

Energy Industries 39%

Manufacturing 8% Manufacturing 12%

Russian Federation, 2019

Portugal, 2019 Residential 7%

Other 2%

Other 11%

Agriculture 11%

Industrial processes 12%

Agriculture 5%

Industrial processes 11%

Residential 10% Waste 5%

Transport 28% Energy 70%

Waste 7%

Transport 12%

Energy 79%

Manufacturing 8% Manufacturing 12%

Energy Industries 21%

Energy Industries 38%

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

 29 Slovak Republic, 2019 Residential 12%

Slovenia, 2019

Other 1% Agriculture 7%

Other 2%

Residential 8%

Agriculture 10% Industrial processes 7%

Industrial processes 22%

Waste 3%

Transport 20% Energy 67%

Transport 33%

Energy 80%

Waste 4% Energy Industries 27% Manufacturing 16%

Energy Industries 18%

Manufacturing 10%

Spain, 2019 Other 1% Residential 12%

Sweden, 2019 Residential 5%

Agriculture 12%

Other 1% Agriculture 14%

Industrial processes 8%

Waste 5%

Transport 32%

Industrial processes 16%

Energy 68%

Energy 75% Transport 29% Waste 2% Energy Industries 18% Energy Industries 16%

Manufacturing 14%

Manufacturing 15%

Switzerland, 2019

Turkey, 2019

Other 1%

Other 2% Agriculture 13%

Agriculture 14%

Residential 14%

Residential 26% Industrial processes 9% Waste 2%

Energy 76%

Industrial processes 11% Transport 16%

Energy Industries 7%

Manufacturing 10% Transport 32%

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

Waste 3%

Energy 72%

Manufacturing 11% Energy Industries 29%

30  United States, 2019

United Kingdom, 2019 Other 3% Residential 21%

Agriculture 9% Industrial processes 6%

Other 8% Residential 9%

Agriculture 10% Industrial processes 6% Waste 2%

Waste 4%

Energy 80%

Energy 82% Energy Industries 19%

Energy Industries 27%

Transport 28%

Transport 27%

Manufacturing 11%

Manufacturing 10%

Source: OECD, Environment Database.

ANNEX. A FRAMEWORK TO DECARBONISE THE ECONOMY

 31

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