Carbon pricing worldwide - Statistics & Facts
It is widely accepted that the world must transition to a net-zero emission economy to combat rising global temperatures and limit the worst impacts of climate change. One measure to achieve this goal that is gaining momentum around the world is carbon pricing. Between 2010 and 2023, the number of carbon pricing mechanisms more than quadrupled to 75, with these instruments now covering roughly a quarter of global GHG emissions. But with global emissions continuing to rise and carbon prices seen by many as too low to reduce emissions, will carbon pricing fulfill its potential?
The two main direct carbon pricing mechanisms are carbon taxes and emissions trading systems (ETS). Under a carbon tax, governments set a fixed price that businesses and industries must pay for each metric ton of carbon dioxide equivalent (tCo₂) they emit from burning carbon-based fossil fuels in their operations. ETSs, on the other hand, work on a cap-and-trade principle whereby governments set a limit on the amount of GHGs entities can emit each year. A fixed number of allowances are put on the market that allow the holder to emit one tCO₂ equivalent. These mechanisms cover emissions from several sectors, including power, industry, and buildings, though coverage varies depending on the jurisdiction. There are also indirect methods of carbon pricing, like carbon offsetting, whereby private entities purchase emissions reductions or removals from a range of projects to offset their emissions.
Carbon taxes also vary considerably, with the highest rates around the world exceeding 100 USD/tCO₂, while the lowest rates amount to less than one USD/tCO₂. There are also dramatic price variations for carbon dioxide removal (CDR) methods. The average selling price for Direct Air Capture (DAC) in 2023 was around 715 USD/tCO₂, while biomass removal technologies cost roughly 100 USD/tCO₂.
Nevertheless, in its current state, carbon pricing is not enough to achieve climate objectives. According to models, global carbon prices remain much too low and need to increase at least 10-fold by 2030 to limit global temperatures to at least 1.5 degrees Celsius above pre-industrial levels. Only then will carbon pricing truly achieve its potential.
What is carbon pricing?
Considered one of the most cost-effective tools to decarbonize economies, carbon pricing is designed to capture the cost to society that major carbon polluters cause when adding GHG emissions to the atmosphere. By putting a price on carbon, those who are most responsible for this damage have an economic incentive to reduce their usage of fossil fuels and turn to lower-carbon alternatives, thereby reducing emissions.The two main direct carbon pricing mechanisms are carbon taxes and emissions trading systems (ETS). Under a carbon tax, governments set a fixed price that businesses and industries must pay for each metric ton of carbon dioxide equivalent (tCo₂) they emit from burning carbon-based fossil fuels in their operations. ETSs, on the other hand, work on a cap-and-trade principle whereby governments set a limit on the amount of GHGs entities can emit each year. A fixed number of allowances are put on the market that allow the holder to emit one tCO₂ equivalent. These mechanisms cover emissions from several sectors, including power, industry, and buildings, though coverage varies depending on the jurisdiction. There are also indirect methods of carbon pricing, like carbon offsetting, whereby private entities purchase emissions reductions or removals from a range of projects to offset their emissions.
The cost of carbon
The global direct carbon price averaged around 23 USD/tCO₂ in 2023, but prices vary greatly depending on the jurisdiction, the policies in place, and the pricing mechanism. For example, the cost of carbon contracts on the European Union ETS, the world’s first major carbon market, has hit highs of over 100 USD/tCO₂ in recent years, with prices rising considerably after reforms in 2018. In comparison, carbon prices on China’s national ETS, which launched to much fanfare in 2021, have seen highs of roughly 12 USD/tCO₂.Carbon taxes also vary considerably, with the highest rates around the world exceeding 100 USD/tCO₂, while the lowest rates amount to less than one USD/tCO₂. There are also dramatic price variations for carbon dioxide removal (CDR) methods. The average selling price for Direct Air Capture (DAC) in 2023 was around 715 USD/tCO₂, while biomass removal technologies cost roughly 100 USD/tCO₂.
The future of carbon pricing
Carbon pricing can be a powerful tool to combat climate change, as has been shown in the EU, where emissions covered by the EU ETS have reduced by 40 percent since its launch. And with more and more initiatives being implemented worldwide, there is clearly progress being made within the industry. Future developments include the launch of a new carbon market in the EU (EU ETS II) that will cover emissions from road transportation, as well as the expansion of China’s national ETS to include heavy industry and manufacturing. Another recent development in the world of carbon pricing is the rise of Carbon Border Adjustment Mechanisms (CBAM), which imposes a tariff on imports of carbon-intensive products like steel, thereby addressing carbon leakage issues.Nevertheless, in its current state, carbon pricing is not enough to achieve climate objectives. According to models, global carbon prices remain much too low and need to increase at least 10-fold by 2030 to limit global temperatures to at least 1.5 degrees Celsius above pre-industrial levels. Only then will carbon pricing truly achieve its potential.
