Global Adoption: 75 Instruments and Counting
What started as an economic theory in the 1920s has become a global policy reality. As of 2024, 75 carbon pricing instruments are in operation around the world. This lesson maps the current landscape and examines trends in coverage and prices.
The Growth of Carbon Pricing
The world's first carbon tax was introduced in Finland in 1990. The European Union launched its Emissions Trading System in 2005. Since then, adoption has accelerated dramatically:
- 1990s: A handful of Nordic carbon taxes
- 2005: EU ETS launches as the world's first major trading system
- 2010: 21 carbon pricing instruments in operation
- 2015: 40 instruments, covering about 12% of global emissions
- 2020: 61 instruments, covering about 20% of global emissions
- 2024: 75 instruments, covering about 23% of global emissions
Today, carbon pricing covers nearly a quarter of all greenhouse gas emissions globally. This includes some of the world's largest economies: the European Union, China, the United States (at state level), Canada, the United Kingdom, Japan, and South Korea.
Current Carbon Prices Around the World
Carbon prices vary enormously across jurisdictions, from less than $1 per ton to over $100 per ton. Here are some notable examples as of 2024:
| Jurisdiction | Instrument | Price (USD/tCO2e) | Coverage |
|---|---|---|---|
| EU ETS | Trading system | ~$80-100 | Power, industry, aviation |
| Sweden | Carbon tax | ~$130 | Heating fuels, transport |
| Switzerland | Carbon tax | ~$130 | Heating, industry |
| UK ETS | Trading system | ~$50-70 | Power, industry, aviation |
| California | Trading system | ~$35-40 | Economy-wide |
| Canada (federal) | Carbon tax/trading | ~$50 (rising) | Economy-wide |
| China | Trading system | ~$10 | Power sector |
| South Korea | Trading system | ~$10-15 | Power, industry |
| Singapore | Carbon tax | ~$25 | Large emitters |
| Mexico | Carbon tax | ~$3-4 | Fossil fuels |
What Price Is High Enough?
A key question for carbon pricing is whether prices are high enough to drive the emissions reductions needed for climate goals. According to the High-Level Commission on Carbon Prices (led by economists Joseph Stiglitz and Nicholas Stern), achieving the Paris Agreement goals requires carbon prices of:
- $40-80 per ton by 2020 (most jurisdictions missed this)
- $50-100 per ton by 2030
- Higher still thereafter
As of 2024, only about 5% of global emissions are covered by a carbon price in this range. Most carbon prices remain too low to drive the deep reductions needed for climate goals.
Example: If you are a power company deciding whether to build a new natural gas plant or a wind farm, a carbon price of $5/ton will barely affect your decision. But at $50/ton, the economics shift significantly toward wind. And at $100/ton, fossil fuel generation becomes increasingly uncompetitive.
The Emissions Coverage Map
Where carbon pricing applies matters as much as the price level. Current coverage varies by region:
High coverage (over 80% of emissions priced)
- European Union (through EU ETS and national carbon taxes)
- Nordic countries
- Canada (federal backstop ensures national coverage)
Medium coverage (40-80% of emissions priced)
- United Kingdom
- South Korea
- California and northeastern US states
Lower coverage (under 40% of emissions priced)
- China (power sector only, though this alone is the world's largest ETS)
- Japan
- Most developing countries with carbon pricing
Revenue from Carbon Pricing
Carbon pricing generates substantial government revenue. In 2023, global carbon pricing revenues reached approximately $95 billion, with the EU ETS alone generating over $40 billion.
This revenue can be used for:
- Climate investments: Funding renewable energy, energy efficiency, and climate adaptation
- Tax reform: Reducing other taxes like income or payroll taxes
- Direct transfers: Returning money to households as dividends or rebates
- Deficit reduction: Paying down government debt
- General budget: Funding any government priorities
Different jurisdictions make different choices about revenue use:
European Union: Revenue from auctioned allowances goes to member state governments. At least 50% must be used for climate-related purposes. In practice, most countries exceed this threshold.
British Columbia, Canada: The carbon tax was originally "revenue neutral," with all revenue returned through cuts to personal and corporate income taxes, plus credits for low-income households.
California: Auction revenue funds the Greenhouse Gas Reduction Fund, which supports clean transportation, sustainable communities, and natural resource protection.
Switzerland: About two-thirds of carbon tax revenue is returned to households and businesses as per-capita rebates. The remainder funds building efficiency programs.
The Effective Carbon Rate
The OECD tracks not just explicit carbon prices (taxes and ETS) but also "effective carbon rates" that include:
- Carbon taxes
- ETS permit prices
- Fuel excise taxes (which implicitly price carbon even if not designed to)
- Minus fossil fuel subsidies
This broader measure shows that many countries effectively price carbon higher than explicit instruments suggest. Fuel taxes in Europe, for example, add significant costs to transport emissions even before any carbon tax.
However, the OECD also finds that only about 42% of global emissions face any positive effective carbon rate. And the average effective carbon rate is only about $14 per ton of CO2, far below what is needed.
Trends and Momentum
Several trends are shaping the future of carbon pricing:
1. Rising prices
Carbon prices in established systems have been rising. The EU ETS price increased from under $10 in 2017 to over $80 in 2024. Canada's federal carbon price is scheduled to rise to $170 CAD (about $130 USD) by 2030.
2. Expanding coverage
New sectors are being added to existing systems. The EU is expanding to maritime shipping and eventually buildings and road transport. China plans to add more industrial sectors to its ETS.
3. New adopters
Middle-income countries are increasingly adopting carbon pricing. Recent additions include Indonesia, Vietnam, and Turkey (which is developing an ETS to align with the EU).
4. Border adjustments
The EU's Carbon Border Adjustment Mechanism (CBAM), which takes effect in 2026, will require importers to pay for the carbon content of certain goods. This is prompting trading partners to consider their own carbon pricing to keep that revenue domestically.
The combination of higher prices, broader coverage, new adopters, and border adjustments suggests carbon pricing will play an increasingly important role in global climate policy.
Challenges Remain
Despite progress, significant challenges persist:
Price levels are still too low in most jurisdictions to drive the needed emissions reductions.
Coverage remains incomplete, with many emissions sources still unpriced.
Political resistance limits ambition in some countries, especially when carbon prices affect household energy costs.
International coordination is limited, creating concerns about competitiveness and carbon leakage.
Looking Ahead
In the next lesson, we will explore the FASTER Principles for Successful Carbon Pricing, a framework developed by the World Bank and OECD to guide effective carbon pricing design.