Carbon markets: The why, what & where

  • In this paper we provide a guide to carbon and their trading systems. We pay particular attention to the scope and breadth of carbon schemes and why they are an important part of achieving net zero
  • Carbon price coverage is growing[1]: 60+ carbon tax or trading policies exist around the world. These cover 21.5% of global GHG emissions compared to 5% coverage ten years ago. In addition, 97 countries representing 58% of emissions mention carbon pricing in their official climate plans
  • Carbon prices are low: Half of emissions covered by a carbon price are priced at less than US$10 per ton of CO2, while the IMF estimate the global average carbon price to be just US$3 per ton of CO2[2]. The outlier is Europe where carbon prices are currently hitting fresh highs high at over EUR90/tonne[3]
  • Carbon prices may increase further: In 2017, the Commission on Carbon Prices concluded that carbon prices of at least US$40–80/tCO2 at the stary of this decade and US$50–100/tCO2 by 2030 were necessary, along with other supportive policies, to have a meaningful impact in carbon emission reduction[4]. Currently, less than 5% of global emissions are priced at this level¹
  • Carbon price revenues are significant: In 2020, governments raised US$53 billion from carbon prices¹. In 2019, approximately 50% of revenues went to environmental and development projects, 40% to general government budgets and 10% to tax cuts and revenue transfers
  • Carbon border taxes are a new area of activity: Plans to introduce a European carbon border adjustment mechanism are in train. This would tax carbon at the point of consumption rather than production. It aims not just to curb carbon leakage, but hopefully incentivise exporting regions to decarbonise
  • Net zero goals are likely to demand Carbon Capture, Use and Storage technologies[5] but these necessitate higher carbon prices and government support for deployment: The International Energy Agency estimates that captured CO2 needs to grow 20x from around 40 million tonnes today to over 800 million tonnes by 2030. This represents annual retrofitting of around 20 coal power plants in Asia and more than 90 cement plants between 2025-2030

Click here to read the full article. 

This complements our main report examining the EU ETS.

1. World Bank (May 2021). 2021 State and Trends of Carbon Pricing

2. IMF (June 2021). A proposal to scale up carbon pricing

3. Bloomberg Finance LP (7 February 2022)

4. World Bank (May 2017). Report of the High-Level Commission on carbon prices

5. IEA (December 2020). Energy Technology Perspectives 2020


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