Carbon Pricing
Analysis of the status and trends of carbon pricing mechanisms in 2022 reveals their importance in mitigating emissions and encouraging low-carbon investments. However, the ongoing energy crisis presents new challenges, impacting the effectiveness of carbon pricing policies. While high gas prices limit their ability to incentivize a shift from coal to gas in electricity production, carbon pricing still plays a crucial role in signaling long-term investment needs and discouraging carbon-intensive fossil fuel generation. Furthermore, it generates revenue to support clean energy transitions and address social and competitiveness concerns.
As of April 2022, 68 carbon pricing initiatives were in place globally, with most being Emission Trading Systems (ETS). Many initiatives experienced price increases, but less than 10% of global emissions are covered by carbon prices exceeding USD 10/t CO2-eq. In some cases, high natural gas prices hindered the effectiveness of carbon pricing instruments in promoting the adoption of lower-carbon sources.
Increases in carbon prices and coverage have led to a new record of revenues raised by these instruments, reaching USD 140 billion in 2021, with ETS revenues more than doubling within a year (USD 26 billion to USD 56 billion). Schemes differ in the use of their revenues. California’s Cap-and-Trade, for example, returns the majority of revenues to power companies and, ultimately, electricity consumers, while another part is used for carbon mitigation
programmes through its Greenhouse Gas Reduction Fund. This notably includes programmes on renewable energy integration towards low-income households.
As of April 2022, 68 carbon pricing initiatives were in place globally, with most being Emission Trading Systems (ETS). Many initiatives experienced price increases, but less than 10% of global emissions are covered by carbon prices exceeding USD 10/t CO2-eq. In some cases, high natural gas prices hindered the effectiveness of carbon pricing instruments in promoting the adoption of lower-carbon sources.
Increases in carbon prices and coverage have led to a new record of revenues raised by these instruments, reaching USD 140 billion in 2021, with ETS revenues more than doubling within a year (USD 26 billion to USD 56 billion). Schemes differ in the use of their revenues. California’s Cap-and-Trade, for example, returns the majority of revenues to power companies and, ultimately, electricity consumers, while another part is used for carbon mitigation
programmes through its Greenhouse Gas Reduction Fund. This notably includes programmes on renewable energy integration towards low-income households.
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China's national ETS, introduced in 2021 and covering the power sector only, is the biggest carbon market, and accounts for about 9% of global GHG emissions. The introduction of partial auctioning of allowances – instead of free allowance allocation – in the power sector as well as expansion to industry are currently being considered. Japan’s GX League, composed of over 500 companies, has started pilot trading in its voluntary carbon market, with official trading starting in April 2023. This includes major participants in the electricity, gas and heat and water sectors, such as TEPCO, Kanden and Chuden. India also recently adopted a carbon market framework legislation, envisioning the construction of a national carbon market.
Electricity projects are also being affected by rules decided in voluntary carbon markets. Most notably, since 2020 the two biggest carbon credits standards issuers, Gold Standard and Verra, decided to no longer register new renewable projects, except for those located in Least Developed Countries1. This is because large-scale renewable electricity projects are already cost-effective, not requiring further support from carbon markets. |
Increases in carbon prices years 2018 to 2021
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