In 2023, carbon pricing revenues reached a record $104 billion, according to the World Bank’s annual “State and Trends of Carbon Pricing 2024” report.

Key findings:

Large middle-income countries including Brazil, India, Chile, Colombia, and Türkiye are making strides in carbon pricing implementation.

While traditional sectors like power and industry continue to dominate, carbon pricing is increasingly being considered in new sectors such as aviation, shipping, and waste.

Currently in a transitional phase, the EU’s Carbon Border Adjustment Mechanism, or CBAM is also encouraging governments to consider carbon pricing for sectors such as iron and steel, aluminum, cement, fertilizers, and electricity.

The India story:

India legalized a carbon market in 2022, establishing an ETS based on existing energy efficiency schemes in emission-intensive sectors, potentially evolving into a compliant carbon market.

Countries like India, Indonesia, Morocco, Türkiye, Ukraine, Uruguay, and the Western Balkans are implementing or considering direct carbon pricing to reduce compliance costs and capture EU revenue.

Government crediting mechanisms have been launched in five jurisdictions since 2023, bringing the total to 35 globally. 11 jurisdictions are considering carbon crediting mechanisms, including India revising its carbon pricing plans and Thailand upgrading its domestic crediting mechanism to Premium T-VER for international buyers.

Overestimation of cookstove impacts underscores need for accurate assessment methodologies. China and India remain largest host countries, but issuance volumes decrease 40% annually.

Carbon taxes and emissions trading systems currently cover 24% of global emissions, with significant progress in middle-income countries like Brazil, India, and Turkey. These countries recognize the need for climate action and the role of carbon pricing in climate mitigation strategies.

New carbon credit sources are emerging, and middle-income countries are integrating crediting frameworks into their policies. China, the EU, India, and Vietnam are relaunching their schemes, with voluntary action accounting for most demand, while compliance demand is slowly building.

Challenges:

Despite record revenues and growth, global carbon price coverage and levels remain too low to meet the Paris Agreement goals.

Currently, less than 1% of global greenhouse emissions are covered by a direct carbon price at or above the range recommended by the High-level Commission on Carbon Prices to limit temperature rise to below 2ºC.

The Paris Agreement’s temperature goals require urgent action to align mitigation efforts with cost-effective policies like carbon pricing. Implemented carbon taxes and emissions trading systems cover a quarter of global emissions, with revenue exceeding $100 billion in 2023.

The report notes that closing the implementation gap between countries’ climate commitments and policies will require much greater political commitment.

However, concerns over market integrity persist, leading to declining market activity and a growing pool of non-retired credits.

Data:

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.

When the first report was released, carbon taxes and Emission Trading Systems (ETS) covered only 7% of the world’s emissions. According to the 2024 report, 24% of global emissions are now covered.

“Carbon pricing can be one of the most powerful tools to help countries reduce emissions. That’s why it is good to see these instruments expand to new sectors, become more adaptable and complement other measures,” said Axel van Trotsenburg, World Bank Senior Managing Director. “This report can help expand the knowledge base for policymakers to understand what is working and why both coverage and pricing need to go up for emissions to go down.”

The way forward:

Governments are also increasingly using carbon crediting frameworks to attract more finance through voluntary carbon markets and facilitate participation in international compliance markets.