The adoption of carbon pricing policies around the world is accelerating and now covers between 20 and 25 per cent of global greenhouse gas emissions, according the Institute for Climate Economics (I4CE).
However, the French think tank warned that while the reach of emissions markets are increasing rapidly, carbon prices are still far below the level needed to ensure international climate goals are met.
Assessing the key trends in carbon pricing, I4CE’s Global Carbon Account 2018 report found that despite such policies now covering up to a quarter of the world’s emissions, there are still “too few” jurisdictions which have implemented an explicit carbon price.
As of April 1 this year, 46 countries and 26 provinces or cities around the world have adopted market-based measures which put a price and cap on emissions of CO2 from industry, according to the report.
Moreover, the adoption of carbon pricing policies is accelerating, with three Emissions Trading Schemes (ETSs) and three carbon taxes implemented in 2017, as well as more than 25 new carbon pricing instruments announced for the coming years.
The global roll out has been bolstered by the entry into force of China’s ETS in December 2017, which has helped push the proportion of global emissions covered by carbon pricing policies from 13 per cent in 2016 to between 20 and 25 per cent today.
In addition, revenues from carbon pricing initiatives are also increasing, the report found, with I4CE estimating that such policies generated $32bn in 2017, up from $22bn the previous year. Carbon taxes accounted for 65 per cent of carbon pricing revenues in 2017, it added.
However, I4CE’s annual report also highlights that carbon prices are perceived as too low to have a significant economic impact. While the price per tonne of CO2 emitted currently varies between less than $1 and $139 depending on the jurisdiction, more than 75 per cent of emissions regulated by carbon pricing are covered by a price below $10 (€8), a level that is widely considered far too low to support the low carbon transition needed to meet the Paris Agreement targets.
I4CE raised concern that carbon prices remained unaligned with the 2C trajectory set out in the Paris treaty, highlighting economic research suggesting carbon prices need to reach between $40 and $80 per tonne by 2020, rising to between $50 and $100 by 2030.
A series of reforms to Europe’s ETS earlier this year has helped push up the EU’s carbon price above €14 – its highest level in years.
However, analysis earlier this month by Thomson Reuters found that greenhouse gases regulated by the EU ETS ticked up for the first time in seven years, largely due to increased emissions from industrial manufacturers, such as the cement sector.