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Meanwhile, China is considering a carbon tax, reports the Australian Financial Review (). The government has been signaling new environmental taxes for several months and the AFR says expectations are high that details of a carbon tax will emerge at the Communist Party economic meeting starting on Saturday.

The OECD's report shows taxes and trading systems are preferable to other policies, such as feed-in tariffs, subsidies and other regulatory instruments.

It draws lessons from climate change policies in 15 countries in some of the sectors that generate the most emissions: electricity generation, road transport, pulp & paper and cement, as well as household energy use.

It underlines that while the cost of carbon taxes is clear – which is why they are easy targets for political opposition – other policy instruments entail higher costs to society per tonne of CO2 abated, in many cases, substantially higher.

That sounds almost like a direct swipe at the federal government's Direct Action plan, which Environment Minister Greg Hunt attempts to portray as a market-based instrument, just like water trading in the Murray-Darling.

Former treasury secretary Ken Henry yesterday challenged that concept on two grounds. Water trading is based on a licence to extract, yet there is no suggestion the government plans to create a permit to emit. Also, under Direct Action the government is the only buyer, muting the power of a private market.

The OECD found capital subsidies in the electricity sector would cost 176 euro ($250) per tonne of CO2 abated; feed-in-tariffs cost 169 euro per tonne; and trading systems 10 euro per tonne of CO2 on average.

The average cost of reducing a tonne of carbon emissions in the road transport sector can be up to eight times higher when instruments other than fuel taxes are used.

“Countries are pricing carbon in a multitude of ways, not always the most effective,” said OECD Secretary-General Angel Gurría.

"There has been a huge amount of taxing and regulating around carbon, with prices established too high or too low, and the outcome has been far from optimal. This is a chaotic landscape that sends no clear signal, and must be addressed.”

During a hosted by the London School of Economics earlier in October, Gurría said governments must adopt a coherent approach to carbon pricing if they are to meet international commitments to gradually phase out fossil fuel emissions and limit climate change to a 2 degrees C temperature increase from pre-industrial levels.

“There is only one way forward: governments need to put in place the optimal policy mix to eliminate emissions from fossil fuels in the second half of the century. Cherry-picking a few easy measures will not do the trick," he said.