CarbonPricinginthePowerSectorRoleanddesignfortransitioningtowardnet-zerocarbondevelopment©2024TheWorldBankGroup1818HStreetNW,Washington,DC20433Telephone:202-473-1000;Internet:www.worldbank.orgThefindings,interpretations,andconclusionsexpressedinthisworkdonotnecessarilyreflecttheviewsofTheWorldBank,itsBoardofExecutiveDirectors,orthegovernmentstheyrepresent,orthoseoftheIEA’sindividualmembercountriesorfunders.TheWorldBank,ICAPandtheIEAdonotguaranteetheaccuracy,completeness,orcurrencyofthedataincludedinthisworkanddonotassumeresponsibilityforanyerrors,omissions,ordiscrepanciesintheinformationorliabilitywithrespecttotheuseoforfailuretousetheinformation,methods,processes,orconclusionssetforth.Theboundaries,colors,denominations,andotherinformationshownonanymapinthisworkdonotimplyanyjudgmentonthepartofTheWorldBank,ICAPortheIEAconcerningthelegalstatusofanyterritoryortheendorsementoracceptanceofsuchboundaries.Thecontentsofthisworkareintendedforgeneralinformationalpurposesonlyandarenotintendedtoconstitutelegal,securities,orinvestmentadvice,anopinionregardingtheappropriatenessofanyinvestment,orasolicitationofanytype.SomeoftheorganizationsofTheWorldBankGrouportheiraffiliatesmayhaveaninvestmentin,provideotheradviceorservicesto,orotherwisehaveafinancialinterestin,certainofthecompaniesandpartiesnamedherein.NothinghereinshallconstituteorbeconstruedorconsideredtobealimitationuponorwaiveroftheprivilegesandimmunitiesofanyoftheorganizationsofTheWorldBankGroup,allofwhicharespecificallyreserved.RIGHTSANDPERMISSIONSThematerialinthisworkissubjecttocopyright.BecauseTheWorldBankGroupencouragesdisseminationofitsknowledge,thisworkmaybereproduced,inwholeorinpart,fornoncommercialpurposesaslongasfullattributiontothisworkisgivenandallfurtherpermissionsthatmayberequiredforsuchuse(asnotedherein)areacquired.TheWorldBankGroupdoesnotwarrantthatthecontentcontainedinthisworkwillnotinfringeontherightsofthirdpartiesandacceptsnoresponsibilityorliabilityinthisregard.AllqueriesonrightsandlicensesshouldbeaddressedtoWorldBankPublications,TheWorldBankGroup,1818HStreetNW,Washington,DC20433,USA;e-mail:pubrights@worldbank.org.CarbonPricinginthePowerSectorForewordElectricityisthelifelineforamoderneconomy.Atthesametime,thepowersectoristheworld’smainsourceofgreenhousegasemissions.Limitingtheworsteffectsofachangingclimaterequiresthatthesupplyofcleanelectricitygrowsrapidly.Thispresentschallengesasthepowersectoristechnologicallycomplexandrequirescostlyinfrastructuredevelopment.Thesectorisalsohighlyregulatedanddependentondomesticnaturalresourcesandfluctuatinginternationalcommoditymarkets.Forpolicymakers,carbonpricingstandsoutasoneofthemostpotenttoolsavailabletoreduceemissionsinthepowersector.TheEUandtheUKareprimeexamplesofhowcarbontaxesandcap-and-tradesystemscanhelpsignificantlyadvancethedecarbonizationofthepowersector.However,thepathtoimplementingcarbonpricinginlow-andmiddle-incomecountriesisfraughtwithchallenges,includingfinancingobstacles,theurgentneedtoboostsupply,andsocialprioritiesdifferentfromthoseofmoreadvancedeconomieswithmorecarbonpricingexperience.Thisreport,jointlydevelopedbetweentheWorldBank,theInternationalEnergyAgency(IEA)andtheInternationalCarbonActionPartnership(ICAP),delvesdeepintothepowersectorvaluechaindynamics,demonstratinghowwell-designedcarbonpricinginstrumentscanbeinstrumentalinhelpinglow-andmiddle-in...