Charging firms for emitting carbon dioxide has generated a record high of about $95 billion in revenue, but prices remain too low to meet the targets set by the Paris climate accord, says a World Bank report.
Several countries have set a price on carbon emissions to help meet their climate goals in the form of a tax, or under an emissions trading (ETS), or cap-and-trade system.
The World Bank has been tracking the carbon markets for around 20 years and issued the annual State and Trends of Carbon Pricing report, which is now in its tenth year.
When the first report was published 10 years ago, only 7% of global emissions were covered by either a carbon tax or an ETS. In the 2023 report, almost a quarter (23%) of global greenhouse gas emissions are now covered by 73 instruments.
An ETS caps the amount of greenhouse gas emissions, allowing smaller emitters to sell their extra allowances to bigger emitters, thereby establishing a market price for emissions. Meanwhile, a carbon tax directly sets a price on carbon by defining a tax rate on emissions.
This year’s report shows that governments are prioritizing direct carbon pricing policies to reduce emissions, despite the economic turmoil and geopolitical instability of this year, which threatened to divert attention from the urgent need to act on climate. “But to really drive change at the scale needed, we will need to see big advances both in terms of coverage and price,” said Jennifer Sara, global director for Climate Change at the World Bank.
A report published by the High-Level Commission on Carbon Prices in 2017 indicated that carbon prices need to be in the $50-100 ton range by 2030 to keep the rise in global temperatures below 2 degrees Celsius, the upper limit agreed upon in the 2015 Paris Agreement.
“As of April 1, 2023, less than 5% of global greenhouse gas emissions are charged at or above the recommended price range by 2030,” the report said.
The World Bank report added that these prices would need to be in the range of $61 to $122 per ton when adjusted for inflation.
