Market and product

* CO2 prices too low to encourage reductions
* 60% of emissions not covered by markets
* Better use of markets could improve climate, economic outcomes

The vast majority of energy-derived carbon emissions in 41 developed and emerging economies are not priced high enough to encourage their reduction, according to a study released Monday by the Organization for Economic Cooperation and Development.

The report said that 60% of all emissions in the 41 states are not subject to an effective carbon price at all, and 10% of pollution attracts a carbon price of between zero and Eur5/mt ($5.41/mt).

The countries surveyed represent more than 80% of world energy use, the OECD said.

"90% of emissions are priced below the low-end estimate of the climate cost of CO2 emissions, being Eur30 per mt, and 70% of CO2-emissions are priced at a rate of less than Eur5/mt, implying there is hardly any policy-driven price incentive to reduce these emissions," the report said.

Carbon prices are not being used to their full potential, the report said.

The OECD underlined points made by other policy analysts looking at the EU Emissions Trading System, where carbon allowance prices have been pushed to lower-than-expected levels by a combination of the global economic slowdown, use of cheap carbon offset credits and other EU climate and energy policies which also curbed industrial CO2 emissions.

"Where stringent alternative policies are in place, this means that CO2 emissions abatement policies are likely to be more costly than necessary," the OECD said.

"Where alternative policies are lacking or weak, it means that current policies do not reflect the climate cost of CO2 emissions," it said.

"In either case, increased reliance on carbon pricing will allow more ambitious climate policy and better economic outcomes," the report said.