We're excited to share some critical insights from the latest The World Bank report on carbon pricing.
Carbon pricing instruments, including carbon taxes and Emissions Trading Systems (ETS), cover approximately 23% of global greenhouse gas emissions. New initiatives could potentially increase this to almost 30%.
Carbon pricing is expanding beyond traditional sectors like power and industry to include sectors such as maritime transport and waste. Multilateral initiatives like CORSIA for aviation and IMO for shipping are contributing to this expansion.
Governments are increasingly using multiple carbon pricing instruments in parallel to expand coverage and price levels. Flexible policy designs are being implemented to reflect national circumstances and to provide greater compliance flexibility.
Carbon pricing revenues reached a record high of $104 billion in 2023. ETSs generated the majority of this revenue due to high prices, particularly in the EU.
Over half of the revenue collected from carbon pricing is used to fund climate and nature-related programs. The rest supports general budgets (25%), households, and businesses affected by carbon pricing.
While carbon tax rates showed slight increases, ETS prices experienced mixed changes with some systems seeing decreases. Overall, current price levels remain insufficient to meet the Paris Agreement goals.
Only seven carbon pricing instruments have price levels at or above the inflation-adjusted minimum level of $63 per tCO2e needed to meet Paris Agreement goals.
There are now 75 national carbon pricing instruments in operation globally (39 carbon taxes and 36 ETSs). This includes a mix of carbon taxes and ETSs. Middle-income countries like Brazil, India, and Türkiye are making notable progress towards implementing carbon pricing.
Many jurisdictions around the world allow the use of offsets to meet compliance obligations. Different regions have specific rules and standards governing the use of offsets, including the types of projects that are eligible and the verification processes required.
Looking forward:
Carbon pricing is expanding globally to meet climate targets.
The demand for carbon credits is expected to grow, driven by the rollout of more domestic compliance instruments and international initiatives like CORSIA.
The development of robust carbon markets is essential.
Efforts are being made to strengthen market infrastructure, enhance transparency, and ensure the integrity of carbon credits.
Challenges include political resistance, economic constraints, and the need for international cooperation, requiring strong political will and stakeholder engagement.
Significant opportunities exist to leverage carbon pricing for climate targets, innovation, and sustainable growth, with potential for integration with global markets.
Download the below slides to discover the essential takeaways on the global expansion of carbon pricing, rising demand for carbon credits, the development of robust carbon markets, overcoming challenges, and the opportunities ahead.
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