There are now 75 carbon pricing instruments in operation worldwide. Over half of the collected revenue was used to fund climate and nature-related programs.
In a positive step for the environment, global revenue from carbon pricing programs hit a record $104 billion in 2023. This is according to the World Bank's latest report on the topic “State and Trends of Carbon Pricing 2024”. There are also now 75 such programs in place worldwide, and over half the money collected goes towards funding climate and nature-related programs.
Importance of carbon pricing
According to Axel van Trotsenburg, World Bank Senior Managing Director said that carbon pricing, which can include carbon taxes or emissions trading systems, is seen as a key tool to reduce greenhouse gas emissions. That’s why it is good to see these instruments expand to new sectors, become more adaptable and complement other measures.
The Bigger Picture
Carbon pricing instruments, including taxes and Emission Trading Systems (ETS), have expanded significantly, covering 24% of global emissions compared to just 7% two decades ago. Countries like Brazil, India, and Chile are leading the charge in implementing these schemes, and their efforts extend beyond traditional sectors like power and industry. New frontiers are being explored with the inclusion of aviation, shipping, and waste management in carbon pricing initiatives.
The EU’s Carbon Border Adjustment Mechanism, currently in a transitional phase, is pushing even more industries to adopt carbon pricing schemes (such as iron and steel, aluminum, cement, fertilizers, and electricity).
Furthermore, governments are increasingly utilizing carbon crediting frameworks to attract investments through voluntary carbon markets and facilitate participation in international compliance markets.
However, despite the record-breaking revenues and growth, there are still significant hurdles to overcome. The current coverage and pricing levels remain far too low to achieve the ambitious goals outlined in the Paris Agreement. In fact, less than 1% of global greenhouse gas emissions are currently subject to a carbon price high enough to truly make a difference in reducing emissions. The report emphasizes that a significant increase in political commitment is needed to bridge the gap between the climate pledges made by countries and the implementation of effective policies.
While carbon pricing is undoubtedly gaining traction as a powerful tool in the fight against climate change, the global community needs to accelerate its efforts. Broader implementations are crucial to ensure that carbon pricing reaches its full potential and plays a decisive role in achieving our climate goals.
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