Annex B. Carbon pricing development in selected sub-national pricing schemes

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In British Columbia, the carbon tax was planned to increase from CAD 40/tCO2 (EUR 27.1/tCO2) to 50/tCO2 (EUR 33.5/tCO2) on April 1st, 2020, however, due to COVID-19 the increase was postponed, and the original rate (CAD 40/tCO2) was frozen throughout 2020. On April 1st 2021 the carbon tax increased to CAD 45/tCO2 (EUR 30.2/tCO2). Originally, British Columbia would have reached their target rate of 50/tCO2 (EUR 33.5/tCO2) in 2021, which will instead be reached by April 2022 (World Bank, 2021[91]). In Mexico, changes were initiated for two sub-national carbon tax schemes. The Tamaulipas carbon tax legislation was passed in July 2020 which resulted in the carbon tax being launched by January 2021. The carbon tax applies to CO2e emissions from fixed sources and facilities emitting more than 25 tCO2e, and is approximately MXN 250/tCO2e (EUR 11/tCO2e) (World Bank, 2021[91]). The carbon tax of Baja California was launched on May 1st, 2020, at a rate of MXN 170/tCO2 (EUR 7.1/tCO2) and is applicable to gasoline, diesel, natural gas, and liquefied petroleum gas (World Bank, 2021[91]). The following policy changes during the first 20 months of COVID-19 for sub-national ETS were climatepositive and permanent.  In Québec, Canada, climate-positive policy change within the ETS took place as a new bill was passed in October 2020. The modifications include a name change of the current fund from Green Fund to Electrification and Climate Change Fund and the fund is now fully managed by the Ministry of Environment. Furthermore, the total amount of revenue from the ETS is now attributed to climate action, as opposed to before. Allowances which were previously allocated for free to industrial emitters, have also been included in auctions. The revenue from these is, nevertheless, reserved for those emitters who previously benefitted from the free allocation, on the condition that the revenue is used to finance climate mitigation (ICAP, 2021[40]).  For California’s ETS, climate-positive changes were implemented on January 1st, 2021, and included a reduction of the emission cap by 13.4MtCO2e each year from 2021 to 2023, equivalent to a 4% average per year. It also included the transition from three price tiers (three price levels at which additional allowances are released) to two price tiers at USD 41.4 (EUR 35.5) and USD 53.2 (EUR 45.7) and the implementation of a hard price ceiling at USD 65 (EUR 55.8) (State of California, 2021[283]) (EDF & IETA, 2018[284]). With its existing price floor, the system now has a price corridor. Changes, furthermore, include a reduction in the number of offset participants can use from 8% to 4% from 2021 to 2025 (World Bank, 2021[91]) (ICAP, 2021[40]).  Another interesting ETS is the Transportation and Climate Initiative Program (TCI-P) which is the combination of regional sub-systems targeting CO2 emissions in the transport sector in several US states. During COVID-19 a final Memorandum of Understanding and a document outlining the systems design were released in December 2020 and signed by Connecticut, Massachusetts, Rhode Island, and Washington D.C. in February 2021 (TCI-P, 2020[285]). The program operates with an emissions cap that declines 30% from 2023 (program start) until 2032, and auctions almost all of its allowances with revenue recycling back to each participating state (TCI-P, 2020[286]).  A roadmap for an ETS pilot in the Sakhalin Region in Russia was approved in January 2021, which will help Sakhalin reach carbon neutrality in 2025. The Sakhalin ETS pilot is viewed as a testing phase for regional GHG regulation policy changes which can be extended later on (ICAP, 2021[40]).

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 In Japan the Tokyo ETS started its third phase (2020-24) in April 2020, permanently increasing the emissions target from 15% or 17% (industry dependent) to 25% or 27% below base-year emissions (the average emissions of any three consecutive years between FY2002 and FY2007, as chosen by each entity) by 2024. The Tokyo ETS was the only assessed sub-national ETS which experienced a COVID-19 related delay in regard to the submission deadline for annual reports which was pushed by two months (ICAP, 2021[133]). Regarding aviation taxes, British Columbia and Québec, Canada both waived long-term parking fees for aircrafts, while British Columbia also deferred aviation fees by three months. In California, the policy changes were similar as they also deferred rent and landing payments (IATA, 2021[120]). All policy changes related to FFS took place in British Columbia and Québec in Canada, which both had multiple climate-negative FFS policy changes. In British Columbia the natural gas levy was decreased and the Orphan Liability Levy (covers oil well clean-up costs) was postponed. In Québec, support was given for natural gas projects (OECD, 2021[72]).