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State and Trends of

Carbon Pricing

2022

1818 H Street NW, Washington, DC 20433

Telephone: 202-473-1000; Internet: www.worldbank.org

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The ndings, interpretations, and conclusions expressed in this work do not

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of the privileges and immunities of the World Bank, all of which are specically

reserved.

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Attribution—Please cite the work as follows: The World Bank. 2022. “State

and Trends of Carbon Pricing 2022” (May), World Bank, Washington, DC. Doi:

10.1596/978-1-4648-1895-0. License: Creative Commons Attribution CC BY 3.0 IGO

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can include, but are not limited to, tables, gures, or images.

All queries on rights and licenses should be addressed to the Publishing and

Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA;

fax: 202-522-2625; e-mail: pubrights@worldbank.org.

ISBN (electronic): 978-1-4648-1895-0

DOI: 10.1596/ 978-1-4648-1895-0

CHAPTER 1

CHAPTER 3

SUMMARY

CHAPTER 2

ANNEXES

FOREWORD

The development of this report was led by the World Bank and prepared by

experts from the World Bank and Climate Focus. Contributions, including on data

and information on mandatory cap-and-trade systems, were provided by the

International Carbon Action Partnership. Additional data and contributions were also

provided by Ecosystem Marketplace and CDP.

SinoCarbon Innovation & Investment and S&P Global Platts also supported

development of this report.

The World Bank task team responsible for this report was composed of Joseph Pryor,

Jichong Wu, Cameron Byers, Mustafa Ozgur Bozcaga, Alejandra Mazariegos, Mariza

Montes de Oca Leon, Seoyi Kim, Harikumar Gadde, and Dirk Heine.

The Climate Focus team included Darragh Conway, Carolina Inclan, Lieke ‘t Gilde,

Imogen Long, Paul Dingkuhn, Elisa Perpignan, and Adriaan Korthuis.

This report beneted greatly from the insights and contributions from: Megersa

Abera Abate; Kyeongah Ahn; Gabriela Alarcón-Esteva; Andrés Camilo Álvarez; Erik

van Andel; Veli Auvinen; Isabella Maria Pereira de Ávila; Marco Antonio Murcia

Baquero; Pía Biestro; Pierre Bouchard; Brunei Climate Change Secretariat, Ministry of

Development; Marcelo Caera; Alexandre Xavier Ywata de Carvalho; Marcos Castro;

Central Statistics Oce (Ireland); Daniella Marques Cosentino; Marta Hernández

de la Cruz; Francisco Dall'Orso; Department for Business Energy and Industrial

Strategy (United Kingdom); Department of Finance (Government of the Northwest

Territories, Canada); Department of Finance (Ireland); Department of Industry,

Science, Energy and Resources (Australia); Ira Dorband; Bill Drumheller; Maosheng

Duan; Thomas Duchaine; Jane Ellis; Dominik Englert; Klenize Chagas Fávero; Simon

Fellermeyer; Simone von Felten; Demetrio Florentino de Toledo Filho; Carolyn

Fischer; Teresa Solozabal Gallego; Aric Gliesche; Marlen Goerner; Government of

Saskatchewan, Canada; Government of Singapore; Greenhouse Gas Inventory &

Research Center (Republic of Korea); Stephane Hallagatte; Sharlin Hemraj; Min

Hou; Iñaki Gili Jauregui; Angela Naneu Churie Kallhauge; Jussi Kiviluoto; Britta

Labuhn; Camille Leboeuf; Sungwoo Lee; Scott Legree; Emídio Lopes; Luca Lo Re;

Glenda Bezerra Lustosa; Memory Machingambi; Lía Lizzette Ferreira Márquez; Taisei

Matsuki; Ermi Miao; Ministry of Environment and Parks (Government of Alberta,

Canada); Ministry of the Environment (Estonia); Ministry of the Environment (Japan);

Ministry of Finance (Luxembourg); Sara Moarif; Sarah Moyer; Daniel Nachtigall;

New Brunswick Climate Change Secretariat; Oce of the Revenue Commissioners

(Ireland); Matthias Ofner; Klaus Oppermann; Ian Parry; Jeannette Ramirez; Kim

Ricard; Susanne Riedener; Marisol Rivera-Planter; Germán Romero; Giovanni Ruta;

José Ricardo Ramos Sales; Rico Salgmann; Marissa Santikarn; Juan Pedro Searle; Pola

Shim; Gustavo Saboia Fontenele e Silva; Edson Silveira Sobrinho; Moekti Handajani

Soejachmoen; Will Space; Sandhya Srinivasan; Katie Sullivan; Swedish Energy Agency;

Tokyo Metropolitan Government; Simon Tudiver; Maiko Uga; Under Secretariat of

Public Revenue, Ministry of Economy (Argentina); Andhyta Firselly Utami; Marijke

Vermaak; Stefanie Wukovits; Olga Yukhymchuk; and Mourad Ziani.

Report design was done by Kynda and editing was done by EpsteinWords.

This report has been developed as part of the Knowledge Program under the

Partnership for Market Implementation.

CHAPTER 1

CHAPTER 3

SUMMARY

CHAPTER 2

ANNEXES

FOREWORD

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StateandTrendsofCarbonPricing2022©2022InternationalBankforReconstructionandDevelopment/TheWorldBank1818HStreetNW,Washington,DC20433Telephone:202-473-1000;Internet:www.worldbank.orgSomerightsreserved123425242322ThisworkisaproductofthestaffoftheWorldBankwithexternalcontributions.Thefindings,interpretations,andconclusionsexpressedinthisworkdonotnecessarilyreflecttheviewsoftheWorldBank,itsBoardofExecutiveDirectors,orthegovernmentstheyrepresent.TheWorldBankdoesnotguaranteetheaccuracyofthedataincludedinthiswork.Theboundaries,colors,denominations,andotherinformationshownonanymapinthisworkdonotimplyanyjudgmentonthepartoftheWorldBankconcerningthelegalstatusofanyterritoryortheendorsementoracceptanceofsuchboundaries.NothinghereinshallconstituteorbeconsideredtobealimitationuponorwaiveroftheprivilegesandimmunitiesoftheWorldBank,allofwhicharespecificallyreserved.RIGHTSANDPERMISSIONSThisworkisavailableundertheCreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO)http://creativecommons.org/licenses/by/3.0/igo.UndertheCreativeCommonsAttributionlicense,youarefreetocopy,distribute,transmit,andadaptthiswork,includingforcommercialpurposes,underthefollowingconditions:Attribution—Pleasecitetheworkasfollows:TheWorldBank.2022.“StateandTrendsofCarbonPricing2022”(May),WorldBank,Washington,DC.Doi:10.1596/978-1-4648-1895-0.License:CreativeCommonsAttributionCCBY3.0IGOTranslations—Ifyoucreateatranslationofthiswork,pleaseaddthefollowingdisclaimeralongwiththeattribution:ThistranslationwasnotcreatedbytheWorldBankandshouldnotbeconsideredanofficialWorldBanktranslation.TheWorldBankshallnotbeliableforanycontentorerrorinthistranslation.Adaptations—Ifyoucreateanadaptationofthiswork,pleaseaddthefollowingdisclaimeralongwiththeattribution:ThisisanadaptationofanoriginalworkbytheWorldBank.ResponsibilityfortheviewsandopinionsexpressedintheadaptationrestssolelywiththeauthororauthorsoftheadaptationandarenotendorsedbytheWorldBank.Third-partycontent—TheWorldBankdoesnotnecessarilyowneachcomponentofthecontentcontainedwithinthework.TheWorldBankthereforedoesnotwarrantthattheuseofanythird-party-ownedindividualcomponentorpartcontainedintheworkwillnotinfringeontherightsofthosethirdparties.Theriskofclaimsresultingfromsuchinfringementrestssolelywithyou.Ifyouwishtoreuseacomponentofthework,itisyourresponsibilitytodeterminewhetherpermissionisneededforthatreuseandtoobtainpermissionfromthecopyrightowner.Examplesofcomponentscaninclude,butarenotlimitedto,tables,figures,orimages.AllqueriesonrightsandlicensesshouldbeaddressedtothePublishingandKnowledgeDivision,TheWorldBank,1818HStreetNW,Washington,DC20433,USA;fax:202-522-2625;e-mail:pubrights@worldbank.org.ISBN(electronic):978-1-4648-1895-0DOI:10.1596/978-1-4648-1895-02CHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFOREWORDThedevelopmentofthisreportwasledbytheWorldBankandpreparedbyexpertsfromtheWorldBankandClimateFocus.Contributions,includingondataandinformationonmandatorycap-and-tradesystems,wereprovidedbytheInternationalCarbonActionPartnership.AdditionaldataandcontributionswerealsoprovidedbyEcosystemMarketplaceandCDP.SinoCarbonInnovation&InvestmentandS&PGlobalPlattsalsosupporteddevelopmentofthisreport.TheWorldBanktaskteamresponsibleforthisreportwascomposedofJosephPryor,JichongWu,CameronByers,MustafaOzgurBozcaga,AlejandraMazariegos,MarizaMontesdeOcaLeon,SeoyiKim,HarikumarGadde,andDirkHeine.TheClimateFocusteamincludedDarraghConway,CarolinaInclan,Lieke‘tGilde,ImogenLong,PaulDingkuhn,ElisaPerpignan,andAdriaanKorthuis.Thisreportbenefitedgreatlyfromtheinsightsandcontributionsfrom:MegersaAberaAbate;KyeongahAhn;GabrielaAlarcón-Esteva;AndrésCamiloÁlvarez;ErikvanAndel;VeliAuvinen;IsabellaMariaPereiradeÁvila;MarcoAntonioMurciaBaquero;PíaBiestro;PierreBouchard;BruneiClimateChangeSecretariat,MinistryofDevelopment;MarceloCaffera;AlexandreXavierYwatadeCarvalho;MarcosCastro;CentralStatisticsOffice(Ireland);DaniellaMarquesCosentino;MartaHernándezdelaCruz;FranciscoDall'Orso;DepartmentforBusinessEnergyandIndustrialStrategy(UnitedKingdom);DepartmentofFinance(GovernmentoftheNorthwestTerritories,Canada);DepartmentofFinance(Ireland);DepartmentofIndustry,Science,EnergyandResources(Australia);IraDorband;BillDrumheller;MaoshengDuan;ThomasDuchaine;JaneEllis;DominikEnglert;KlenizeChagasFávero;SimonFellermeyer;SimonevonFelten;DemetrioFlorentinodeToledoFilho;CarolynFischer;TeresaSolozabalGallego;AricGliesche;MarlenGoerner;GovernmentofSaskatchewan,Canada;GovernmentofSingapore;GreenhouseGasInventory&ResearchCenter(RepublicofKorea);StephaneHallagatte;SharlinHemraj;MinHou;IñakiGiliJauregui;AngelaNaneuChurieKallhauge;JussiKiviluoto;BrittaLabuhn;CamilleLeboeuf;SungwooLee;ScottLegree;EmídioLopes;LucaLoRe;GlendaBezerraLustosa;MemoryMachingambi;LíaLizzetteFerreiraMárquez;TaiseiMatsuki;ErmiMiao;MinistryofEnvironmentandParks(GovernmentofAlberta,Canada);MinistryoftheEnvironment(Estonia);MinistryoftheEnvironment(Japan);MinistryofFinance(Luxembourg);SaraMoarif;SarahMoyer;DanielNachtigall;NewBrunswickClimateChangeSecretariat;OfficeoftheRevenueCommissioners(Ireland);MatthiasOfner;KlausOppermann;IanParry;JeannetteRamirez;KimRicard;SusanneRiedener;MarisolRivera-Planter;GermánRomero;GiovanniRuta;JoséRicardoRamosSales;RicoSalgmann;MarissaSantikarn;JuanPedroSearle;PolaShim;GustavoSaboiaFonteneleeSilva;EdsonSilveiraSobrinho;MoektiHandajaniSoejachmoen;WillSpace;SandhyaSrinivasan;KatieSullivan;SwedishEnergyAgency;TokyoMetropolitanGovernment;SimonTudiver;MaikoUga;UnderSecretariatofPublicRevenue,MinistryofEconomy(Argentina);AndhytaFirsellyUtami;MarijkeVermaak;StefanieWukovits;OlgaYukhymchuk;andMouradZiani.ReportdesignwasdonebyKyndaandeditingwasdonebyEpsteinWords.ThisreporthasbeendevelopedaspartoftheKnowledgeProgramunderthePartnershipforMarketImplementation.3CHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFOREWORDFIGURE1MapofcarbontaxesandETSs16FIGURE2ShareofglobalGHGemissionscoveredbycarbonpricinginstruments17FIGURE3Absoluteemissionscoverage,shareofemissionscovered,andpricesforCPIsacrossjurisdictions19FIGURE4PriceevolutioninselectETSsfrom2008to202121FIGURE5Recordhighcarbontaxratesinsixjurisdictions23FIGURE6CarbonpricesasofApril1,202226FIGURE7Revenuegeneratedpercarbonpricinginstrumentin202127FIGURE8Evolutionofglobalcarbonpricingrevenuesovertime27FIGURE9Globalvolumeofissuancesbycreditingmechanismcategory34FIGURE10Stylizedrepresentationoftypesofcarboncreditingmechanismsandmarketsegments36FIGURE11Creditissuanceandnumberofprojectsin2021,bycategoryofmechanisms37FIGURE12Mapofnationalandsubnationalcreditingmechanisms39FIGURE13ATypeanduseofinternalcarbonpricing42FIGURE13BUptakeofinternalcarbonpricing43FIGURE14Pricesofstandardizedcarboncreditcontracts43FIGURE15Multilayeredpurchaserdecisionsshapediversemarketsandprices45FIGURE16Creditsissued,registeredactivities,average2020price,andsectorscoveredbycreditingmechanisms66Listoffigures4CHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFOREWORDBOX1Directcarbonpricinginstruments13BOX2RevisionstoglobalGHGcoverageestimatesinthisyear’sreport18BOX3Theroleofthefinancialsectorinemissionstrading24BOX4TheEU’sproposedCarbonBorderAdjustmentMechanism29BOX5Article6rulesonlinkingemissionstradingsystems31BOX6JusttransitionintheEU’sclimatepolicy32BOX7Understandingcarboncreditmarkets35BOX8Internalcarbonpricing42BOX9Whatistokenization?47BOX10ThefinalizedArticle6Rulebookprovidesroomforflexibilityinvoluntarytransactions48BOX11Article6activities50TABLEB1CarbonpricingdevelopmentsinselectedCanadianprovincesandterritories56TABLEB2DevelopmentsinChina’ssubnationalpilots57Listofboxesandtables5CHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFOREWORDBCBritishColumbiaBCABordercarbonadjustmentCADCanadiandollarCBAMCarbonBorderAdjustmentMechanismCCMCostcontainmentmechanismCCRCostcontainmentreserveCDMCleanDevelopmentMechanismCHFSwissfrancCNYChineseyuanCO2CarbondioxideCOPConferenceofthePartiesCOP262021UnitedNationsClimateChangeConference(26thConferenceoftheParties)COP272022UnitedNationsClimateChangeConference(27thConferenceoftheParties)CORSIACarbonOffsettingandReductionSchemeforInternationalAviationCPICarbonpricinginstrumentEDGAREmissionsDatabaseforGlobalAtmosphericResearchEITeEmissions-intensivetradeexposedEPEEmpresadePesquisaEnergética(EnergyResearchCorporation,Brazil)ETSEmissionstradingsystemEUEuropeanUnionEUREuroG7GroupofSevenG20Groupof20GBPBritishpoundGHGGreenhousegasGtCO2Gigatons(abillionmetrictons)ofcarbondioxideHFLDHighForestLowDeforestationICAOInternationalCivilAviationOrganizationICPInternalcarbonpriceIMFInternationalMonetaryFundIPCCIntergovernmentalPanelonClimateChangeITMOInternationallytransferredmitigationoutcomeJCMJointCreditingMechanismKCUKoreanCreditUnitKOCKoreanOffsetCreditLPGLiquefiedpetroleumgasMRVMonitoring,reporting,andverificationMSRMarketstabilityreserveMtCO2MillionmetrictonsofcarbondioxideNbSNature-basedsolutionNDCNationallydeterminedcontributionnEHSNationalEmissionsTradingScheme(Germany)NOKNorwegiankroneNZDNewZealanddollarOBPSOutput-basedpricingsystem(Canada)OECDOrganisationforEconomicCo-operationandDevelopmentPMIPartnershipforMarketImplementationREDD+ReducingEmissionsfromDeforestationandForestDegradationRGGIRegionalGreenhouseGasInitiativeSBTiScience-BasedTargetsInitiativeSDGSustainableDevelopmentGoalSGDSingaporedollarSLCCSSriLankaCarbonCreditingSchemeTCI-PTransportationandClimateInitiativeProgramtCO2MetrictonsofcarbondioxidetCO2eMetrictonsofcarbondioxideequivalentTEPATaiwanEnvironmentalProtectionAdministrationUAHUkrainianhryniaUKUnitedKingdomUKAUnitedKingdomAllowanceUNUnitedNationsUNFCCCUnitedNationsFrameworkConventiononClimateChangeUSUnitedStatesUSDUnitedStatesdollarUYUUruguayanpesoVCMIVoluntaryCarbonMarketsIntegrityInitiativeVCSVerifiedCarbonStandardWTOWorldTradeOrganizationZARSouthAfricanrandListofabbreviations6CHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFOREWORDTableofcontents7FOREWORDANNEXA:METHODOLOGIESANDSOURCESCHAPTER1:INTRODUCTIONCHAPTER2:CARBONTAXESANDEMISSIONSTRADINGSYSTEMSCHAPTER3:CARBONCREDITINGANNEXB:CARBONTAXANDETSUPDATESEXECUTIVESUMMARYANNEXC:CREDITINGMECHANISMUPDATESFOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESForewordTheclimatecrisiscontinuestoescalateamidaprolongedpandemic,increasingeconomicinstabilityandgeopoliticaltensions.Commitmentsmadeatthe2021UnitedNationsClimateChangeConference(COP26)keephopealivethatavoidingtheworsteffectsofclimatechangeiswithinourreach,buttheperilremainsstark.ThelatestworkfromtheIntergovernmentalPanelonClimateChangemakesplainthatwemustarrestrisingemissionsnowtowardoffclimatedanger.Meetingthischallengeinuncertaintimescallsforambitious,just,andcomprehensiveactionbypolicymakers.Inthisregard,carbonpricing,withinanintegratedpolicymix,isoneofthemostpowerfultoolsavailableforguidingeconomiestowardlow-emissionpaths.Tomaximizethebenefits,carbonpricesignalsmustbesustained,strengthened,andextendedtoagreaterportionofglobalemissions,three-quartersofwhicharecurrentlyuntouchedbycarbonpricinginstruments.However,recenteconomicinstability,volatileenergymarkets,andrisingenergypricesexacerbatethepoliticalchallengesforpolicymakers.TheWorldBank’sannualreportontheStateandTrendsofCarbonPricingcontinuestoprovideatrustedglobalsnapshotofcarbonpricingdevelopmentsfromyeartoyear.Thepastyearhasseensomepositivesigns,particularlyinrelationtohighercarbonprices,increasedrevenues,andtheadoptionofnewrulesforinternationalcarbonmarkets(underArticle6oftheParisAgreement).However,asinpreviousyears,progresshasbeenfarfromadequate.AsofApril1,2022,onlyfournewcarbonpricinginstrumentshadbeenimplementedinthepastyearanddespiterecord-highpricesinsomejurisdictions,thepriceinmostjurisdictionsremainswellbelowthelevelsrequiredtodeliverontheParisAgreementtemperaturegoals.In2021,highercarbonprices,revenuefromnewinstruments,andincreasedauctioninginemissionstradingsystemsresultedinarecordUSD84billionofglobalcarbonpricingrevenue,around60%higherthanin2020.Suchanimpressiveincreasehighlightscarbonpricing’sburgeoningpotentialtoreshapeincentivesandinvestmenttowarddeepdecarbonization.Further,itillustratescarbonpricing’spotentialroleasabroaderfiscaltooltocontributetowardbroaderpolicyobjectives,suchastorestoredepletedpublicfinances,aidpandemicrecovery,orsupportvulnerablesectorsandcommunitiestoadapttoclimateimpactsandachievejusttransitions.Duringthisyear,cross-borderapproachesforcarbonpricingandinternationalcooperationhavemadesignificantstridesforward.TheEuropeanUnionmovedclosertoadoptingitsCarbonBorderAdjustmentMechanism(CBAM),whileCanadaandotherjurisdictionsreaffirmedtheircommitmentstoinvestigatebordercarbonadjustments(BCAs)andbringdownhithertodauntingtechnicalandpoliticalbarrierstosuchreforms.TheCOP26agreementsonnewrulesforinternationalcarbonmarketswillhelppavethewayformorecross-countrycollaborationsandtrade.Encouragingly,morecountriescontinuetoexploreoptionstointroduceacarbonprice,includinglow-andmiddle-incomecountries.TheWorldBankisgearinguptomeetthisincreaseddemandfromclientcountriesfortechnicalsupportoncarbonpricing—andishelpingcountriesmainstreamitintowiderfiscalpolicyandlong-termdecarbonizationstrategies.Thisincludesdevelopingadvisoryservices,analytics,innovation,andhostinginitiativessuchasthePartnershipforMarketImplementation(PMI).ThePMIwillprovidetechnicalassistancetoatleast30countriesindevelopingandimplementingdomesticcarbonpricingandoperationalizingArticle6oftheParisAgreement.TheWorldBankGroup’sClimateChangeActionPlan(2021-2025)committedtoincreasetheWorldBank’sclimatefinancetarget,alignfinancingflowswiththegoalsoftheParisAgreement,andachieveresultsthatintegrateclimateanddevelopment.ThroughthisActionPlan,theWorldBankGroupiswellpositionedtoleverageitsconveningpower,knowledgeandresearch,andcountryprogramsupporttohelpcountriesmakeinformedclimatedecisions,includingoncarbonpricing.BERNICEVANBRONKHORSTClimateChangeGlobalDirector,WorldBankGroup8CHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFOREWORDCARBONPRICINGCANPROVIDETHEIMPETUSFORECONOMICTRANSFORMATIONANDRECOVERY•Moreambitiouscarbonpricescanhelpclosethegapbetweenpledgesandpolicyand“keep1.5alive.”•Alongwithloweringemissions,carbonpricingcanimproveenergyandindustrialefficiency,limitrelianceonimportedenergy,promotecleanerair,protectandregeneratelandscapes,andprovideavaluablesourceofgovernmentrevenue.•Butadoptingcarbonpricesremainspoliticallychallenging,particularlyamidrisinginflationandenergyprices.Thereisaclearneedtoensurepoliciesarefair,effective,andembeddedwithinintegratedclimateandsocialpolicies.DIRECTCARBONPRICINGCONTINUESTOBEADOPTEDBUTGLOBALCOVERAGEREMAINSLOW•Worldwide,68carbonpricinginstruments(CPIs),includingtaxesandemissionstradingsystems(ETSs),areoperatingandthreemorearescheduledforimplementation.•CPIsinoperationcoverapproximately23%oftotalglobalgreenhousegas(GHG)emissions.Thisrepresentsasmallincreaseintotalglobalcoverageasaresultoffournewsystemscommencinginthepastyear.•TheInternationalMaritimeOrganizationisconsideringplacingapriceonemissionsfrominternationalshippingactivities.Ifadopted,thiswouldrepresentamajorstepintacklingglobalGHGemissions.CARBONREVENUESHAVEINCREASEDSHARPLY•Globalcarbonpricingrevenueincreasedbyalmost60%inthepastyear,toaroundUSD84billion.•Withpricesrisingandreducedfreeallocation,ETSrevenuessurpassedcarbontaxrevenuesforthefirsttime.•Increasingcarbonpricingrevenuescansupportsustainableeconomicrecovery,financebroaderfiscalreforms,orhelpbuffercountriesfromeconomicandinternationalturbulence.CARBONPRICESHAVEHITRECORDHIGHSINMANYJURISDICTIONS•RecordETSpriceswereobservedintheEuropeanUnion(EU),California,NewZealand,andRepublicofKorea,amongothermarkets,whileseveralcarbontaxesalsosawpriceshittheirhighestlevelsyet.•Acombinationofpolicyreforms,anticipatedchanges,speculativeinvestmentinterest,andbroadereconomictrends,especiallyinglobalenergycommoditymarkets,aredrivingtheseETSpricespikes.•Nonetheless,pricesmustriseconsiderablymoretomeettheParisAgreementtemperaturegoals,aslessthan4%ofglobalemissionsarecurrentlycoveredbyadirectcarbonpricewithintherangeneededby2030.Executivesummary9CHAPTER1CHAPTER3CHAPTER2ANNEXESFOREWORDSUMMARYNEWFINANCIALSERVICES,TECHNOLOGIES,ANDGOVERNANCEFRAMEWORKSARESHAPINGCARBONMARKETS•Financialactorsarebecomingmoreactiveinthecarbonmarket,whileblockchainhasenabledanewwaveofdecentralizedfinancialinnovationsthatshowthetechnology’spotentialbuthavereignitedsomelong-standingconcernsabouttransparencyandquality.•Diversegovernanceframeworksareemergingfromstakeholdersandinstitutionsthataimtoaddressconcernsregardingtheintegrityofcarboncreditsandhowcompaniesusethem.•NewrulesonArticle6increasecertaintywhilealsoaddingcomplexitytocarboncreditmarketsandmayleadtoincreasinglydivergentapproachesemergingacrossactorsandgeographies.ExecutivesummaryCROSS-BORDERAPPROACHESTOCARBONPRICINGAREINCREASINGLYGAININGTRACTION•TheEUmovedclosertoadoptingitsCarbonBorderAdjustmentMechanism,andCanadaandtheUnitedKingdom(UK)areexploringoptionsforsimilarmechanisms.•TheInternationalMonetaryFund(IMF)andWorldTradeOrganization(WTO)areadvocatingforaninternationalcarbonpricingfloor.•Somecountrieshavemovedtowardtheadoptionofinternationalclimateclubs,includingtheproposedUnitedStates(US)-EUCarbon-BasedSectoralArrangementonSteelandAluminumTrade.•Theseapproachescanfortifydomesticsupport,preventcarbonleakage,andencouragemitigationbeyondnationalborders.MARKETSFORCARBONCREDITSAREGROWINGRAPIDLY•Creditsfromindependentcreditingmechanismsclearlydominatethecarbonmarket.•AnnualvoluntarycarbonmarketvalueexceededUSD1billionforthefirsttime,drivenbycorporatecommitments.•Compliancedemandforcarboncreditsremainslimited,thoughnewrulesforinternationalcarbonmarketsunderArticle6oftheParisAgreementprovideclaritythatmayenablefuturegrowth.DIVERSEPURCHASERPREFERENCESMAKEMARKETGROWTHUNEVEN•Nature-basedcreditsareinespeciallyhighdemand:Forestryandlandusetransactionsmorethandoubledbetween2020and2021.•Increasingdemandforcarbonremovalshasresultedinpriceincreasesforthesecredits.•Thevoluntarycarbonmarketcontinuestobestronglydiverse,withpurchasersplacingwidelydifferentvaluesoncharacteristicssuchassector,geography,andperceivedco-benefits.10CHAPTER1CHAPTER3CHAPTER2ANNEXESFOREWORDSUMMARY1.1DRIVINGTRANSFORMATIONANDSHAPINGECONOMICRECOVERYThepastyearhasseeneffortstotackletheclimatecrisisgathersteam,asitseffectsbecomemoresevereandthechallengeitpresentsmovesclosertothetopofpoliticalagendas.TheIntergovernmentalPanelonClimateChange’slatestreport,itsSixthAssessmentReport,paintedastarkpictureoftheimpactsalreadybeingfelt,includinglossoflife,humanitariancrises,andirreversibledamagetoecosystems.1Ithighlightedtheimpactofeveryadditionalincrementofglobalwarming,suchasthemajordifferencebetweenrestrictingthetemperatureriseto1.5°Cinsteadof2°C.Accordingtothereport,globalemissionswouldneedtofallby43%by2030inordertolimittemperaturesrisingto1.5°C.2Thiswouldrequirerapidemissionsreductionsacrossalleconomicsectors.Despitethis,emissionscontinuedtoriseinthedecadeupto2019.Inlate2021,worldleadersmetinGlasgowforwhatwasbilledasthemostimportantclimateconferencesincetheParisAgreementwasadoptedin2015.Theconferenceachievedsignificantoutcomes,includingagreementstophasedowncoalpowerandremoveinefficientfossilfuelsubsidies,aswellasfinalizingrulesoninternationalcarbonmarkets.Coalitionsofcountriesannouncedgreateractiononforests,methane,andclimatefinance.Nevertheless,combinednationallydeterminedcontributions(NDCs)astheystandtodaywould,iffullyimplemented,stillleadto2.4°Cofwarming,3andtheGlasgowPactcalledoncountriestoupdatetheirtargetsbythe27thsessionoftheConferenceofthePartiestotheUnitedNationsFrameworkConventiononClimateChange(UNFCCC),iduetotakeplaceinNovember2022.AnanalysisofNDCs,longer-termnetzerotargets,andglobalinitiativessuchastheGlobalMethanePledgepaintedaslightlymorepositivepictureindicatingtheywould,ifimplementedinfullandontime,amountto1.8°Cofwarming,bringingthemclosertoGlasgow’sgoalof“keeping1.5[degrees]alive.”4WhileincreasingtheambitionofNDCsandnetzeropledgesisakeypartofthepicture,deliveringonthemisevenmorecrucial.AnalysisbytheInternationalEnergyAgencyindicatesasignificantgapbetweenwhatcountrieshavepledgedandwhatexistingpoliciescanachieve.5TheIntergovernmentalPanelonClimateChange’slatestreportsimilarlyconfirmsthatmanycountrieswouldneedadditionalpoliciestomeettheirownNDCtargets.6AndwhileemissionsbrieflydecreasedduringtheCOVID-19pandemic,energydemandhasbouncedbacktopre-pandemiclevelsandglobalenergy-relatedemissionsrosetoarecordhighin2021.7iThe2022UnitedNationsClimateChangeConference,morecommonlyreferredtoasCOP27.Chapter1Introduction11FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESThecurrentstateofcarbonpricingclearlyreflectsthegapbetweenpoliciesandpledges.WhilecarbonpricesreachedrecordhighsacrossanumberofETSsandcarbontaxesoverthepastyear,themajorityofcarbonpricesremainsignificantlybelowwhatisneededtoachievenetzeroby2050andmeetthegoalsoftheParisAgreement.iiGreatercarbonpricingambitioncanplayacrucialroleinclosingthepolicygapwhenpartofacomprehensiveclimatepolicypackageandgroundedinrobustlong-termstrategies.Anincreasinginterestincross-bordercarbonpricingpoliciesreflectsattemptstorealizesuchambitionwhileaddressingconcernsrelatedtoeconomiccompetitivenessandcarbonleakage.Adoptingambitiouscarbonpricesremainspoliticallychallenging,particularlyinthecontextofrisingenergycommoditypricesandcontinuedpressureoneconomiesfromtheongoingCOVID-19pandemic.Developingandmaintainingcarbonpricingapproachesinthiscontextrequiresastrongemphasisonensuringcarbonpricingisfair,inclusive,andwellcommunicated.Atthesametime,highenergycommoditypricescoupledwithcurrentgeopoliticaltensionsmayalsoprovideanadditionalincentiveforgovernmentstospeeduptheirtransitiontoalternativeenergysources.Moreover,recentresearchhighlightsthatenvironmentaltaxescanbelessdistortionarythanothertaxes,particularlyintimesofeconomicrecovery.iiiTheprivatesector,meanwhile,hasseenasharpriseinvoluntarymitigationtargets,manyofwhichrelytoatleastsomeextentonusingcarboncredits.Thishascontributedtorecordissuances,trades,andprices,thoughithasalsotriggeredincreasedscrutiny.Agrowingnumberofinitiativesareemergingtoassessambitioninvoluntarypledgesandcarboncreditquality.Inaddition,internationalcarbonmarketrulessetatCOP26provideflexibilitytocountriestoauthorizeinternationaltransfersofcreditsfromvoluntarycarbonprojects.Hostcountriesthatopttorequiresuchauthorizationwillinturnapplyacorrespondingadjustmentforsuchtransfers,whichmustbereflectedintheirNDCreportingemissionsbalance.Thesefactorsarelikelytoleadtoincreasingheterogeneityinthevoluntarycarbonmarketasbuyersplacedifferentvaluesonhostcountryauthorizationaswellascreditquality.Theadoptionofinternationalcarbontradingrulesalsoprovidesaframeworkforgreaterintergovernmentalcarbontrading,althoughthepotentialdemandforsuchtradingisuncertain.iiTheReportoftheHigh-LevelCommissiononCarbonPricesindicatesthatthecarbonpriceneedstobeintheUSD50-100/tCO2erangeby2030tokeepglobalheatingto2°C.iiiWorldBankresearchin75countriesindicatesthat,onthewhole,higherenvironmentaltaxesdonotleadtoreducedemploymentintimesofeconomicrecovery,thoughtheymayhavesomeimpactintimesofrecession.Thisisincontrasttopersonalincometaxincreases,whichhavebeenshowntoreduceemploymentduringbothrecessionsandrecoveries.WorldBank(April,2021).Regime-DependentEnvironmentalTaxMultipliers:Evidencefrom75Countries.ivConsumerresponsesrequiremarketframeworksthatallowcarboncoststobepassedthroughthesupplychainortheinclusionofCPIdesignadjustmentstoimprovetheoperationofacarbonpriceunderregulatedmarketsettings.Further,otherpoliciesandinvestments(forexample,publictransportinfrastructure)areoftenalsoneededimprovetheabilityofconsumerstorespondtohigherpricesbyswitchingtolower-emissionalternatives.1.2WHATISCARBONPRICING?Carbonpricingisacost-effectivepolicytoolthatgovernmentscanuseaspartoftheirbroaderclimatestrategy.8Apriceisplacedongreenhousegasemissions,whichcreatesafinancialincentivetoreducethoseemissionsorenhanceremovals.Byincorporatingclimatechangecostsintoeconomicdecision-making,carbonpricingcanhelpencouragechangesinproduction,consumption,andinvestmentpatterns,therebyunderpinninglow-carbongrowth.9CPIsareaimedataddressingpricebarrierstolow-carbondevelopment,buttheseareoftennottheonlytypeofbarrierthatshouldbeaddressedforeffectiveclimatepolicy.Assuch,CPIstypicallyneedtobecomplementedandenhancedbyothertypesofpoliciesthataddressabroadersetofclimatechangechallengesandmarketfailures.Thesemayincluderesearchanddevelopment,sector-specificregulations,investmentintechnologiesandinfrastructure,removalofregulatorybarriers,andmarketreformstoenableincentive-basedapproaches.Additionalmeasuresmayalsobeneededtomitigateunwantedeffectsofclimatepoliciesonspecificsectorsorgroupsinsociety.Governmentscanpricecarbonusingavarietyofpolicyinstruments,whichcanallbetailoredtodomesticcircumstances,priorities,andneeds.Theclimateimpactofcarbonpricingdependsonhowbroadlythepriceisapplied,thepricelevel,andtheavailabilityofabatementopportunities.Economy-widecarbonpricingpoliciesaremoreeffectivethancarbonpricesrestrictedtocertainsectorsorgoodsandhighercarbonpricesincentivizegreateremissionreductions.ivCreatingacredibleandmorepredictablepricesignaloverthelongertermwillsupportlong-terminvestmentsandincentivizelow-carbondevelopment.12FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX1DirectcarbonpricinginstrumentsAcarbontaxisapolicyinstrumentthroughwhichagovernmentleviesafeeonGHGemissions,providingafinancialincentivetoloweremissions.Underacarbontax,thepriceofcarbonissetbythegovernment,andthemarketdeterminesthelevelofemissionreductionsincentivizedbytheprice.AnemissionstradingsysteminvolvesplacingalimitorcaponthetotalvolumeofGHGemissionsinoneormoresectorsoftheeconomy.Agovernmentthenauctionsordistributestradableemissionallowancestoentitiescoveredbythecap,whereeachallowancerepresentstherighttoemitacertainvolumeofemissions(typicallyametrictonofcarbondioxideequivalent),andthetotalvolumeofallowancesequalstheemissionscap.Coveredentitiesarerequiredtosurrenderallowancesfortheiremissionsduringacomplianceperiod.Theycanchoosetobuyadditionalallowancesifnecessaryorsellsurplusallowances.Thispolicytypeisalsoknownasa“cap-and-trade”system.Alternatively,anETSmayusea“baseline-and-credit”system,wherethereisnofixedlimitontotalemissionspersector,butcoveredentitiescan“earn”emissioncreditsiftheyproducefeweremissionsthanthebaseline.Thesecreditscanthenbetradedwithcoveredentitiesthatneedadditionalcreditstocovertheirsurplusemissionsrelativetothebaseline.Examplesofthesesystemsincludeintensitystandardsandtradableperformancestandards.InanETS,thepriceofcarbonisnotfixedbyagovernmentbutdeterminedbythesupplyanddemandofemissionallowancesorcredits.Carboncreditingmechanismreferstoasystemwheretradablecredits(typicallyrepresentingametrictonofcarbondioxideequivalent)aregeneratedthroughvoluntarilyimplementedemissionreductionorremovalactivities.CarboncreditingmechanismsoperatedifferentlytocarbontaxesandETSs—ratherthanrequiringbusinessestopayforemitting(i.e.,thepolluterpaysprinciple),businessesandotherorganizationscangeneratecarboncredits(andhencerevenue)bydemonstratingthatemissionshavebeenreducedorsequesteredrelativetoacounterfactualbaseline.Carbonpricinginstrumentscanbroadlybegroupedintotwocategories:directandindirectcarbonpricing.Directcarbonpricing(Box1)referstoCPIsthatapplyapriceincentivedirectlyproportionaltothegreenhousegasemissionsgeneratedbyagivenproductoractivity,primarilythroughacarbontaxoranETS.Byapplyingthesamepricepermetrictonofcarbondioxide(CO2)acrossmultiplesources,directcarbonpricingensuresthatabatementincentivesareconsistentandcost-effective.vCarboncreditingmechanismsareanotherformofcarbonpricing,andareincludedinthescopeofthisreport,butoperatedifferentlyfromETSsandcarbontaxes.Participationincreditingmechanismsisgenerallyvoluntary,andunlikecarbontaxesandETSs,thesemechanismsdonotinthemselvescreateabroad-basedcarbonprice.Instead,theyofferasubsidytoemissionsabatementamongselectedeligibleactivities.Creditingmechanismsfunctioninconcertwithinitiativesthatcreatedemandforemission-reducingactivitiesateitherthedomesticortheinternationallevel.viIndirectcarbonpricingreferstoinstrumentsthatchangethepriceofproductsassociatedwithcarbonemissionsinwaysthatarenotdirectlyproportionaltothoseemissions.Theseinstrumentsprovideacarbonpricesignal,eventhoughtheyareoften(primarily)adoptedforothersocioeconomicobjectives,suchasraisingrevenuesoraddressingairpollution.10Examplesofindirectcarbonpricingincludefuelandcommoditytaxes,aswellasfuelsubsidiesaffectingenergyconsumers.Forexample,fuelexcisetaxesthatapplyaflattaxamounttogasolinebytheliterindirectlyplaceapriceonthecarbonemissionsfromthecombustionofthatgasoline.Inversely,fuelsubsidiesthatreducethepriceoffossilfuelscreatea“negative”indirectcarbonpricesignal,whichincentivizeshigherconsumptionandthereforeincreasescarbonemissions.Allpolicyinstrumentsthatfocusonthepriceincentiveforusingfuelsandcommoditiescanbeconsideredindirectcarbonprices.However,regulationsandinvestmentincentives—whichmayaddressnon-pricerelatedmarketfailuresbutdonottranslateintoapriceequivalent—arenotconsideredindirectcarbonpricing.viivAnumberofjurisdictions,includinginArgentina,Mexico,andmostrecentlyUruguay,haveintroducedcarbontaxesbuttheseinstrumentshavebeenimplementedwithvaryingtaxrates(permetrictonCO2)acrossfuels.Therefore,whilethesepoliciesarecalled“carbontaxes”andhavebeenhistoricallyincludedwithintheStateandTrendsReports,theymeetthedefinitionforindirecttaxesandprovideincentivesakintotraditionalfueltaxes.viForinstance,creditingmechanismscanprovideadditionalflexibilitytoETSsandtaxesbyexpandingmitigationoptionsforthoseregionsand/orsectorscovereddirectly.viiOtherpolicyinstrumentsandinvestments(forexample,publictransport,powertransmissioninfrastructure)arecrucialtocomplementcarbonpricingandtofurtherenableconsumerstorespondtohigherpricesbyswitchingtolower-emissionalternatives.Thesepoliciesdirectlyandindirectlyleadtoemissionreductionsanddecarbonization.However,classifyingtheinstrumentsprimarilyaimedataddressingotheraspectsofclimateactionasindirectcarbonpricingwouldblurimportantdistinctionsthatareessentialfordesigningsmartpolicymixes.Accordingly,indirectcarbonpricingisassumedtobelimitedtothoseinstrumentswhichadvancetheoriginalpurposeofcarbonpricing(i.e.,addressingpricingmarketfailures).13FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESTheStateandTrendsofCarbonPricingreporthastraditionallyfocusedondirectcarbonpricingandthe2022editioncontinuesthisapproach.However,indirectcarbonpricingalsoinfluencesproduction,consumption,andinvestmentdecisions.Thusitisvaluabletoconsiderbothdirectandindirectpricinginstrumentstobetterunderstandtheprogresstowardreflectingthesocialcostsofgreenhousegasemissionsinmarketprices.Directandindirectcarbonpricesinteractgloballyandinspecificjurisdictions.Thismeans,forexample,thepricesignalprovidedbyadirectcarbonpricewouldbedilutedifitwereoffsetbyaneffectivedecreasetoindirectcarbonpricing,suchasthroughtheintroductionofasubsidythatreducedfuelprices.Anintegratedviewofacountry’sdirectandindirectCPIswillallowpolicymakerstoassessthelandscapeofincentivesandwhatnewinstrumentsmightworktoachievevitalclimatechangegoals.Severalinstitutions,includingtheWorldBank,areexploringavenuestopresentmoredataonindirectpricingandgivebettervisibilityofhowdifferentpricingincentivesapplyandinteractincomingyears.Directcarbonpricingsystems(throughcarbontaxesandETSs)have,todate,largelybeenconcentratedinhigh-andmiddle-incomecountries.Indirectcarbonpricingsystems,suchasfuelexcisesystems,aremorecommonlyimplementedthandirectcarbonpricing,includinginmanydevelopingcountries.Thus,measuringindirectcarbonpricesisparticularlyusefulforunderstandingthestateofplayandprogressinmanydevelopingcountries.InAfrica,forexample,somecountrieshaveachievedmajorincreasesinindirectcarbonpricesthroughfueltaxandsubsidyreforms.AgreementwasreachedatCOP26tophasedowninefficientfossilfuelsubsidies.Thisisasignificantmilestoneanditisthefirsttimesuchanapproachhasbeenincludedinaglobalagreement.Actionstowinddownnegativeindirectcarbonpricingcouldpotentiallybeseenasearlystepstowardreachingaglobalcarbonpricingagreement.Publicofficialsareoftencautiousaboutimplementingdirectcarbonpricingiftheircountryhasneverhadsuchmeasures.Itcanfeelnewandcomplex.Butmostcountriesalreadyhavedecadesofexperiencewithintroducingfuelexcisetaxesandphasingoutsubsidiesonfuelsandcommoditiesandarefamiliarwiththedesign,administration,andchallengesofsuchreforms.Measuringtheindirectcarbonpricefromthesesystemscanpromotefamiliaritywiththeconceptofcarbonpricingandcanhelppolicymakersbetterunderstandthepotentialimpactsfromintroducingadirectcarbonprice.Evencross-countrycomparisonsofoverallor“effective”carbonpricesthatincludebothdirectandindirectpricingtoolsdonotprovideperfectinsightintorelativeclimateeffortorambitionlevels.Otherdimensionsofclimateaction,suchasstructuralreformsandpublicinvestments,arenoteasilytranslatedintocarbonpriceequivalents.Carbonpriceindicatorsmeasureprogressonthepriceelementofclimateactionandshouldnotbemisconstruedasanindicatorofoverallclimateambition.14FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESChapter2CarbontaxesandemissionstradingsystemsFollowingyearsoflimitedgrowth,carbonpricesrosequicklyin2021.PricesincarbontaxesandETSsalikehitrecordlevelsacrossmultiplejurisdictions,drivenbymoreambitiousclimatepolicies,aswellasbroadereconomicfactorssuchasglobalenergycommodityprices.TherapidriseinETScarbonprices,inconjunctionwiththeoperationofnewETSs,hasseenETSrevenuesurge,surpassingcarbontaxrevenueforthefirsttime.However,pricesinmostjurisdictionsremainbelowwhatisneededtomeetthegoalsoftheParisAgreementand“keep1.5[degrees]alive.”Withfewnewinstrumentsorsectorexpansionsthisyear,theglobalcoverageofcarbonpricingincreasedonlymarginallyintheyearleadinguptoApril2022,followingmajorchangesintheprevioustwoyears.Meanwhile,jurisdictionsareincreasinglylookingtowardcross-borderpoliciesandinitiativesthatenablehighercarbonpriceswhileensuringthecontinuedcompetitivenessoftheireconomies.2.1ADOPTIONOFDIRECTCARBONPRICINGCONTINUESBUTGLOBALCOVERAGEREMAINSLOWThepastyearsawfewerchangesinthevolumeofglobalemissionscoveredbydirectcarbonpricesthanpreviousyearsandagreaterfocusbymajoremittersonconsolidatingtheirexistinginstruments.However,variouscountriesareconsideringnewCPIs.AsofApril2022,thereare68CPIsoperatingwiththreemorescheduledforimplementation.Thisincludes37carbontaxesand34ETSs(seeFigure1).AnewcarbontaxinUruguaycommencedinJanuary2022andthreenewETSsalsocommencedinthepastyearinsubnationaljurisdictionsinNorthAmerica—Oregon,NewBrunswick,andOntario.OneUSstate,Washington,aswellasIndonesiaandAustria,haveCPIsscheduledforimplementation.Approximately23%oftotalglobalGHGemissionsarecurrentlycoveredbyoperatingCPIs(seeFigure2),whichissimilartoglobalcoveragein2021(seeBox2).WhiletherehaveonlybeenfournewCPIsimplementedsincelastyear’sStateandTrendsreport,morejurisdictionstookstepstowardimplementingorexpandingcarbonpricing.Inadditiontotheinstrumentsscheduledforintroduction(i.e.,inAustria,Indonesia,andWashingtonState),Israel,Malaysia,andBotswanaannouncedtheirintentionstodevelopnewCPIsandVietnamoutlinedstepstosetupanETS.AnumberofotherjurisdictionsinAfrica,CentralEurope,andAsiacontinuetoassessthepotentialtoimplementCPIs.15FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE1MapofcarbontaxesandETSsETSimplementedorscheduledforimplementationCarbontaximplementedorscheduledforimplementationETSandcarbontaximplementedorscheduledETSimplementedorscheduled,carbontaxunderconsiderationCarbontaximplementedorscheduled,ETSunderconsiderationETSorcarbontaxunderconsiderationIndonesiaSouthAfricaBotswanaNewZealandMexicoKazakhstanPakistanCanadaThailandVietnamTurkeyEUChinaColombiaChileSenegalBrazilCôted’IvoireMoroccoIsraelIcelandArgentinaUruguayCaliforniaJapanRepublicofKoreaNorwayUKSwedenSpainRomaniaPortugalPolandNetherlandsUkraineLithuaniaLatviaItalyIrelandGreeceGermanyFranceFinlandEstoniaDenmarkBulgariaBelgiumSloveniaAustriaSwitzerlandHungarySakhalinOregonJaliscoHawaiiWashingtonTaiwan,ChinaShenyangTokyoTianjinShenzhenShanghaiSaitamaHubeiGuangdong(exceptShenzhen)FujianChongqingBeijingZacatecasTamaulipasBajaCaliforniaTCIRGGIManitobaSaskatchewanQuébecOntarioNovaScotiaAlbertaPrinceEdwardIslandNorthwestTerritoriesNewfoundlandandLabradorNewBrunswickBritishColumbiaCarbonpricinginitiativesareconsidered“scheduledforimplementation”oncetheyhavebeenformallyadoptedthroughlegislationandhaveanofficial,plannedstartdate.Carbonpricinginitiativesareconsidered“underconsideration”ifthegovernmenthasannounceditsintentiontoworktowardstheimplementationofacarbonpricinginitiativeandthishasbeenformallyconfirmedbyofficialgovernmentsources.TCIreferstoTransportationandClimateInitiative.RGGIreferstotheRegionalGreenhouseGasInitiative.16MalaysiaBruneiSingaporeFOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE2ShareofglobalGHGemissionscoveredbycarbonpricinginstrumentsShareofglobalGHGemissions6825%20%15%10%5%0%1990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020202120222321910151619785642313638404345555864NumberofcarbonpricingmechanismsinoperationOntarioEmissionsPerformanceStandards(0.08%)OregonETS(0.05%)UruguayCO2tax(0.01%)NewBrunswickETS(0.01%)17FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX2RevisionstoglobalGHGcoverageestimatesinthisyear’sreportEachyeartheStateandTrendsofCarbonPricingreportestimatestheproportionofglobalGHGemissionscoveredbyadirectcarbonprice.Thisestimateisintendedtohelptracktheprogressofuptakeandcoverageofdirectcarbonpricing.Itisunderpinnedbythreemaincomponents:GHGemissionsinajurisdiction,theproportionofajurisdiction’semissionscoveredbyacarbonprice,andthepotentialoverlapinajurisdictioncoveredbymultipleCPIs.Topromoteconsistencyacrossjurisdictions,countryGHGemissionsaretakenfromtheEmissionsDatabaseforGlobalAtmosphericResearch(EDGAR)(https://edgar.jrc.ec.europa.eu/).TheEDGARdatabaseisupdatedeveryfewyears.ThecurrentreportusesthemostrecentEDGARGHGestimates(version6.0),whichwerereleasedinOctober2021andreferto2018emissionvalues;version5.0onlyincludedupto2015.ThemostrecentupdatetotheEDGARdatabasereflectsupdatedmethodologiesandrevisedactivitydata,includingupdateddatafromtheInternationalEnergyAgencyandtheFoodandAgricultureOrganization.11TheestimatefortheproportionofglobalemissionscoveredintheStateandTrendsofCarbonPricingreport2021was21.5%.Incorporatingup-to-dateEDGARGHGemissionvalues,combinedwithrevisionstotheestimatesofcoveredemissions,particularlyfortheChinesenationalETS,haveresultedinaminorrecalibrationofthecoverageestimate.Thisyear’sestimateindicatesapproximately23%ofgoalemissionsarecoveredbyaCPIinoperation.Around0.2%ofthereportedincreasesince2021occurredbecauseofadditionalcoveragefromthefournewcarbonpricinginstruments(inUruguay,NewBrunswick,Ontario,andOregon).Theremainderoftheincreaseisduetootherfactors,suchasfluctuationsinGHGemissionestimates,revisionstoGHGemissionsdata,andrefinedcoverageassumptionsinspecificjurisdictions.Chinahoststheworld’slargestcarbonmarketbyemissions,and2021sawitsnationalETScompletethefirstfullcompliancecycle,withareportedcompliancerateof99.5%.Over2,100liablepowerstationsparticipatedduringthiscycle,coveringabout4.5billionmetrictonsofCO2equivalent(tCO2e)peryear—over30%ofChina’stotalGHGemissions.Whilethepricesforemissionsallowancesremainrelativelylowcomparedtootherpricingsystems,theclosingpricefortheyearof54.2yuan(USD8.5)permetrictonofCO2(tCO2)translatedtoanincreaseofaround13%overthesixmonthssincetradingcommenced.Atotalof179milliontCO2eofallowancesweretradedin2021,representingacumulativeturnoverofcloseto7.7billionyuan(USD1.2billion).12WhilethisrepresentsrelativelylowvolumesforamarketthesizeoftheChineseETS,itisnotinsignificantgiventheChineseETSisstilltakingkeyphase-insteps—compliancetradingonlycommencedinearnestinOctober2021andcurrentlyonlycoveredentities(i.e.,notfinancialinstitutions)areallowedtomaketrades.13Whiletheoverallcomplianceratefortheschemeisreportedtobe99.5%,therehavealsobeenimportantchallenges,withtheMinistryofEcologyandEnvironmentconfirmingseveralfirmshadfalsifiedemissionsdata.14Thelargestcarbonmarketbytradedvalue,theEUETS,sawrecordtradingactivityandpricesinbothspotandfuturesmarkets.Over15billionemissionallowancesweretradedontheIntercontinentalExchange,thelargestsecondarymarketplatformforEUallowances,withspotpricesincreasingalmostthreefoldoverthecalendaryear.TheEUClimateLawenteredintoforceinJuly2021,whichsetthebindingnewEU-wideclimatetargettoreduceGHGemissionsby55%in2030comparedto1990levelsandachievenetzeroemissionsby2050.Thepackageofmeasuresthathasbeenproposedtomeetthenewcommitment(knownas“Fitfor55”)includestheadditionofanew,separateETScoveringtransportandbuildings.ThiswouldexistinparalleltotheexistingEUETS,whichcoversthepower,industry,andaviationsectors,thoughitwouldsharesomecommonelements,suchasthemarketstabilityreserve(MSR).TheproposedpackageofmeasureswouldalsoextendthescopeoftheexistingEUETStoincludeshippingemissionsbeginningin2023andcovering100%ofemissionsforvoyagesbetweenmemberstateportsand50%forvoyagesbetweenEUportsandthird-countryportsby2026.15TheEUlegislatureiscurrentlydebatingtheseproposals;thepresidencyfortheEnvironmentCouncilmeetinginMarch2022indicatedthattheproposaltoincludeshippinghasbroadsupportbuttheproposaltoincludetransportandbuildingshasgeneratedsignificantdebateamongmemberstatesandintheEUParliament.1618FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE3Absoluteemissionscoverage,shareofemissionscovered,andpricesforCPIsacrossjurisdictionsSpainLatviaPolandUruguayNetherlandsArgentinaUnitedKingdomColombiaChileSwitzerlandDenmarkFrancePortugalFinlandSwedenIrelandSloveniaIcelandNorwayLuxembourgUkraineSingaporeSouthAfricaLiechtensteinCanadaSwitzerlandRGGIUnitedKingdomGermanyEUETSKazakhstanNewZealandRep.ofKorea0204060801001201400%20%40%60%80%CarbonpriceUSD/tCO2eCarbontaxETSShareofGHGemissionscoveredinthejurisdictionBubblesizerepresentsabsolutecoveredtotalgreenhousegasemissions.ForCPIsthathavemultiplepricelevels,thepriceapplyingtothelargershareofemissionsisused.ThisisacompositepresentationrepresentingtotalemissionscoveredbycarbonpricinginstrumentsunderthePan-CanadianFramework.ItincludesacombinationofETS-likeandcarbontax-likeinstruments,implementedatbothprovincialandfederallevels.MexicoChinaNationalETSJapan19FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESTheInternationalMaritimeOrganizationiscurrentlyconsideringmarket-basedmeasures,includingcarbonpricing,toreduceGHGemissionsfrominternationalshipping.In2018,theInternationalMaritimeOrganizationcommittedtohalveGHGemissionsfrominternationalshippingrelativeto2008levelsby2050throughacombinationofmeasures.Thecurrentfocusofnegotiationsismidtermmeasures,forwhichseveralmarket-basedmeasureshavealreadybeenproposed,includingacarbonlevyandacap-and-tradesystem.Thecarbonlevywouldbeappliedtobunkerfuels,startingatUSD100/tCO2efrom2025withupwardratchetsonafive-yearreviewcycle.17Thecap-and-tradesystemwouldbecombinedwithafuelGHGlimit,thelatterofwhichwouldactasacommand-and-controlmeasure.18Industrystakeholders,suchastheInternationalChamberofShipping,shipping’slargesttradeassociation,19amajorcharterer,20andvariousmaritimethinktanks,21haveexpressedtheirsupportforamarket-basedapproachandoutlinedtheirownideasforcarbonpricingininternationalshipping.AtCOP26,theClimateVulnerableForumpresentedtheDhaka-GlasgowDeclaration,withabout50developingcountriescallingforamandatoryGHGlevyonbunkerfuelstobeadoptedbyInternationalMaritimeOrganizationmemberstates.22Potentialcarbonrevenuesaredeemedsignificant,withestimatesofthetotalby2050beingbetweenUSD1trillionandUSD3.7trillion,orUSD40-60billionannually.Strategicallyusingthesecarbonrevenuescouldbecomekeytoacceleratingshipping’sdecarbonizationandensuringanequitabletransitiontowardzero-carbonshippingamongcountries.232.2CARBONPRICESARERISINGBUTAREGENERALLYTOOLOWDirectcarbonpriceshavereachedrecordlevelsacrossmultiplejurisdictionsoverthepastyear,drivenbyacombinationofpolicydecisions,increasedspeculation,andbroadereconomictrends,inparticularglobalenergyprices.However,pricesinmostjurisdictionsremainbelowwhatisneededtomeettheParisAgreement’sgoals.Directcarbonpricesralliedtoall-timehighsinseveralsystemsin2021.ThelargestshareofthisgrowthhasbeenseeninETSs(particularlythoseinadvancedeconomies),wherepricesreacttomarketconditions(seeFigure4).RecordpriceswereseeninthelinkedEUandSwissETSmarkets,thelinkedCaliforniaandQuébecmarkets,theRegionalGreenhouseGasInitiative(RGGI),andtheNewZealandETS.PricesintheUKETShavealsoincreasedsignificantlysinceitslaunchinmid-2021.IntheChinaETS,pricesrecoveredinearly2022followingadipinlate2021.IntheRepublicofKorea,asofFebruary2022priceswereedgingbacktowardtherecordhighswitnessedinearly2020beforetheCOVID-19pandemic,drivenbyimprovedmarketsentimentasaresultofhigherglobalcarbonpricesandimproveddomesticambitionsetoutintheRepublicofKorea’senhancedNDCandthepassageofacarbonneutralitylaw.Sharppricedropswererecordedinseveralsystemsinearly2022,thoughpriceshavesincebeguntorecover.PricesintheEUETS,theNewZealandETS,theUKETS,andtheRepublicofKoreaETSsawdramaticfallsfollowingtheinvasionofUkraineinFebruary.Pricesinallfoursystemshavesincebeguntorecoverbuttheyremainbelowtheheightsrecordedbeforethewar.Theroleofpriceandsupplyadjustmentmechanismshasgainedmoreprominenceinthecontextofrisingprices.WhileCaliforniaallowanceauctionpriceshoveredaroundthefloorpriceforyears,pricesbegantotakeoffinAugust2021andanincreaseinthefloorpricewasintroducedin2022.InFebruary2022,theCaliforniaallowanceauctionpricewasstill48%abovethenewfloorprice.IntheNewZealandETS,thepricecapwasremovedin2021,alongwithanincreaseinthefloorpriceandtheimplementationofacostcontainmentreserve(CCR)threshold.ixTheoldandnewCCRthresholdswereexceededinSeptember202124andMarch2022,25resultinginthereleaseofanadditional12.7millionunits.UKETSpricesalsoreachedCCRlevelsinDecember202126andJanuary2022,27buttheUKETSauthoritydecidednottoissueadditionalunits.Finally,EUlegislatorsarecurrentlyconsideringproposalsfromtheEuropeanCommissiontoreformtheEUETS,whichincludeproposalstostrengthentheMarketStabilityReserve(MSR)byincreasingthenumberofallowancesthataredrawnfromthemarketintothereserveeachyear.Carbontaxratesalsoincreasedduring2021andinthebeginningof2022,albeitbylessthanETSprices.Whilecarbontaxratesremainedrelativelyflatin2020,theyincreasedbyanaverageofroughlyUSD6/tCO2ein2021,andbyanadditionalUSD5/tCO2easofApril1,2022,withmostcarbontaxjurisdictionsincreasingtheircarbontaxratescomparedtothepreviousyear.Severaljurisdictionsobservedtheirhighestdomesticcarbontaxrates,includingBritishColumbiaandotherCanadianprovinces,Ireland,Latvia,Liechtenstein,SouthAfrica,Switzerland,andUkraine(seeFigure5).ixFloorpriceintheNZETSincreasedfromNZD20toNZD30in2022,increasingtowardNZD39in2026;andCCRthresholdincreasedfromNZD51toNZD70,increasingtowardNZD110in2026.20FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE4PriceevolutioninselectETSsfrom2008to2021viiiCaliforniaCap-and-TradeNZETSRep.ofKoreaETSRGGIEUETS2008FinancialcrisisNewZealandabolishespricecapEUETSReformsagreedRepofKoreaproposesmoreambitiousemissionstargetEU55%targetagreedWHOdeclarespublichealthemergencyinresponsetoCOVID-19virusBlackMondaystockmarketcrash,2011Carbonprice(USD/tCO2e)20082010201220142016201820202022120100806040200RussiainvadesUkraineviiiBasedondatafromICAPAllowancePriceExplorer.21FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESMostoftheobservedpriceincreasesareduetopreviouslyscheduledchanges,suchasintheCanadianprovincesxandIreland.xiInothercases,therevisedratewaspartofabroaderfiscalreform,asinNorwayxiiandUkraine.xiiiFinally,SwitzerlandandLiechtenstein’s2022rateincreasefromCHF96/tCO2(USD101/tCO2)in2021toCHF120/tCO2(USD130/tCO2)standsout,asitwastriggeredbytheautomaticadjustmentmechanismthatraisestheratewheneverintermediateGHGtargetsintheCO2lawarenotmet.Severaljurisdictionshavealsoestablishedmoreambitiouspricetrajectoriesforthecomingyears.Forinstance,Singaporeproposedtoprogressivelyincreasethecarbontaxrate(currentlySGD5)toSGD25(USD18)/tCO2ein2024and2025,andSGD45(USD33)/tCO2ein2026and2027,withaviewtoreachingSGD50-80(USD37-59)/tCO2eby2030.ThegovernmentofSouthAfricahasalsoannouncedaproposaltoincreasethecarbontaxratefromthecurrentlevelofjustunderUSD10/tCO2etoreachUSD20/tCO2eby2026,USD30/tCO2eby2030andUSD120/tCO2e,beyond2050.Theseincreasesfollowonlastyear’sannouncementbyCanadatoincreaseminimumcarbonpricesbyCAD15(USD12)/tCO2eannuallysuchthatitwillreachorexceedCAD170(USD136)/tCO2eby2030.Whilejurisdictionshaveandwillcontinuetoannounceandscheduleincreasestocarbontaxrates,jurisdictions’reactiontoenergycommoditypricespikes,acceleratedbythewarinUkraine,mayinfluencethetiming.AsofApril2022,Indonesiahadannounceditwilldelaytheintroductionofitscarbontaxduetotheeconomicimpactofhighenergyprices28andMexicoannouncedexemptionstothecarbontaxappliedtogasolineanddiesel.29SpikesinETSpriceshavebeendrivenbymoreambitiousclimatetargetsandtightenedETSrules.RecentpriceincreasesintheEUETShavecoincidedwithseveralsignificantpolicychangesandproposals,beginningwiththetemporaryremovalof900millionallowancesfromthemarketin2018and,morerecently,the2021decisiontoincreasethe2030mitigationtargetandthepublicationofproposalstotightentheETScap,amongotherreforms.InNewZealand,pricesrosesharplyafteritabolishedthe“fixed-priceoption”(whichallowedparticipantstopayafixedpriceofNZD35(USD24)insteadofsurrenderingallowances)inJune2021.PricesintheRepublicofKoreaETSspikedsharplyinJune2021asthegovernmentproposedatighteningofthecountry’s2030emissionstarget.30xThePan-CanadianFrameworkonCleanGrowthandClimateChangeestablishedpricebenchmarksforprovincesstartingatCAD10/tCO2in2018increasingannuallyatCAD10/tCO2,toreachCAD50/tCO2in2022.xiIrelandFinanceActstipulatesayearlycarbontaxrateincreaseofGBP7.50/tCO2in2021-2029andanincreaseofGBP6.50/tCO2in2030.xiiInDecember2021Norwayannouncedanincreaseof28%reachingNOK766/tCO2(USD87/tCO2)in2022.xiiiInNovember2021,UkraineannouncedathreefoldtaxrateincreasetoUAH30/tCO2(USD1/tCO2)for2022.TheCOVID-19pandemicdidnothaveamajorimpactonpricesandambition.AnalysisofchangestocarbonpricesinOrganisationforEconomicCo-operationandDevelopmentandGroupof20(G20)countriesfromthebeginningofthepandemicuptoAugust2021indicatesthatthemajorityofchangesadoptedwerelikelytoleadtooverallpositiveclimateimpacts.31Whilemostofthesewereplannedbeforethepandemic,itisnotablethatmostgovernmentsdidnotrollbackordelayintroducingthesechangesduetothehealthcrisis.Manygovernmentsdid,however,introducemeasureslikelytoleadtooverallnegativeclimateimpacts,includingincreasingfossilfuelsubsidiesandsuspendingaviationtaxes.Inadditiontoactualpolicyshifts,demandfromparticipantsandspeculatorsalikebettingonpricesincreasingfurtherhasdrivenrisingETSprices.Insomecases,specificdevelopmentscreatethisexpectation,suchasthe2021publicationofrecommendationsbytheNewZealandgovernmentaladvisorybodytheClimateChangeCommission,whichwereexpectedtoleadtothegovernmentfurthertighteningtheETS.32Similarly,investorsanticipatedthattheRepublicofKoreawouldpausetheuseofinternationaloffsetsinitsETSin2021andadoptamoreambitiousclimatetarget.33Thebroaderpressureonjurisdictionstoadoptmoreambitiousmitigationtargets,ascollectivecommitmentscontinuetofallshortofwhatisneededtomeettheParisAgreement’stemperaturegoals,mayalsoplayarole.OpeningupETSmarketstonon-liableentitiescaninfluencepricesandmarketdynamics(seeBox3).InvestmentfirmspurchasingcreditswiththehopeofturningaprofitontheirresalehaveatleastpartiallydrivenrecentpriceincreasesintheCalifornia-Québecmarket.34,35RecordpricesintheRGGIintheUnitedStateshavealsocoincidedwithincreasedparticipationbyspeculators.3622FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE5RecordhighcarbontaxratesinsixjurisdictionsIrelandSingaporeCanadaBritishColumbiaSwitzerlandLatviaSouthAfricaUkraineCarbonprice(USD/tCO2e)020406080100120140200820102012201420162018202020222024202620282030Dottedlineindicatesscheduledpriceincreasesforthosejurisdictionsthathavecommunicatedfuturepricetrajectories.Estimatedpathbasedonthegovernment'sambitiontoincreasethetaxratebyatleastUSD1peryear,andtoincreasetheratemorerapidlyfrom2026toreachUSD30/tCO2ein2030andUSD120/tCO2ebeyond2050.ThisisalowrangeprojectionastheSingaporegovernmentplanstoreachacarbontaxrateofSGD50-80/tCO2e(36-58USD/tCO2e)by2030.BritishColumbiahascommittedtomeetorexceedthefederalbenchmarkcarbonprice.23FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX3TheroleofthefinancialsectorinemissionstradingAnumberofmarkets,includingthelinkedEU-Swissmarket,theCalifornia-Québecmarket,theNewZealandETS,RGGI,and(morerecently)theRepublicofKoreaETS,permitnonparticipantstotradeinemissionsallowancesandoftenalsoinfinancialinstrumentsderivedfromthem.Openingmarketsuptomoreactorscanincreaseliquidity,whichcanenableaclearerpricesignal.However,itcanalsoincreasetheriskofmarketmanipulation.Nonparticipantstypicallyincludebrokersandtraderswhopurchasecreditswiththeintentiontoon-sellintheshorttermandbanksthathelpcompaniescoveredbytheETStohedgetheirexposuretopricedevelopments.Increasingly,however,investorslookingtobuyandholdcreditsinanticipationoffuturepriceincreasesareenteringthemarket.Otherinvestorsarebuyingallowancestodiversifytheirportfoliosortohedgeagainstinflation,astraditionalinflationhedgessuchasoilareincreasinglyunreliable.ThishasbeenseenintheEUETSandinCalifornia.Recentyearshavealsoseenofferingsofexchange-tradedfundsthatinvestinemissionsallowances,providingavehicleforretailinvestorsandevenindividualsinterestedinenvironmentalandsocialgovernancetoparticipateinamarketthatmaynothavebeenpreviouslyaccessibletothem.AspriceshavereachedrecordhighsintheEUmarket,theroleofspeculationiscomingunderclosepoliticalscrutiny.FinancialentitieshavelongplayedaroleintheEUETSbutthishasincreasedinrecentyearsasmoreinvestmentfirmshaveenteredthemarketamidrapidpricegrowth,triggeringconcernsaboutapossible“carbonbubble.”37TheEuropeanSecuritiesandMarketsAuthorityfoundnoevidenceofinsidertradingorsimilaractivitiesineitherapreliminaryreportinlate2021oranin-depthanalysisinMarch2022,butitsetoutanumberofrecommendationstoimprovetransparencyandoversightinthemarket.38Despitethis,EUlawmakershavesignaledtheywilltakemeasurestoaddresspossiblemanipulationaspartofupcomingETSreforms,39andsomehavegonesofarastoproposelimitingtradingtocoverparticipantsandthosetradingontheirbehalf.40Conversely,somejurisdictionsarehopingthatopeningtradingtofinancialplayerswillprovidemuch-neededliquiditytothemarket.In2021,theRepublicofKoreaopenedtradingtoalimitednumberoffinancialentitieswithaviewtoincreasingliquidity,whichhasbeenlackingintheKoreanmarketoverthepastyears.ByDecember2021,20financialshadenteredthemarketandanalystspredictthatthiswillhelpgivethemarketaliquidityboostoncetheseactorsbecomemoreacquaintedwiththesystem.41Risingallowancepricescomeamidstrongincreasesinthepricesofotherfinancialassetsin2021.Otherassets,includingrealestate,stocks,andcryptocurrency,alsoshowedstronggrowth.xivWherecarbonunits(includingemissionallowances)areviewedasaninvestmentvehicle,broaderfactorsinfluencinginvestordemand(suchasmonetarypolicyandcostofcapital)aremorelikelytoaffectbuyingorsellingbehavior.Thesebroadertrendsareexamplesofthemyriadfactorsthatcaninfluencepricesinemissionsmarketsandpointtothechallengesofdeterminingtheprecisefactorsthathaveledtoagivensetofmarketmovements.Risinggaspricesarealsolikelytohaveplayedaroleinbothpushingallowancepricesupwardandcontributingtopricecrashes.ThisisperhapsmostnotableinEurope,whereatriplingofnaturalgaspricesamidtightenedsupplyfromRussialedtoalargershareofcoalintheelectricitymix.ThisputupwardpressureonallowancepricesasincreasingEUemissionsledtohigherdemandforcap-limitedallowances.42xivDoubledigitpercentagepriceincreaseyear-on-yearwerecommonthrough2021inrealestatemarketsacrossEurope,Asia-Pacific,andNorthAmerica,andnominalhousepriceshaveriseninalmost90%ofcountriesthathavepublishedhousingstatisticssofar(GlobalPropertyGuide,2021).MSCI’sWorldIndexincreaseditsvalueby20%,andthetotalcryptocurrencymarketcapincreasedbyalmost200%.DataretrievedfromCoinMarketCap.Seehttps://coinmarketcap.com/.24FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESAtthesametime,sharppricedropsfollowingRussia’sinvasionofUkrainemaybepartiallyexplainedbyinvestorssellingemissionsallowancesinabidtorespondtocapitalneedsgeneratedbyrisinggasprices.43SomeanalystshavealsopointedtogaspricesasbeingamongthedriversoftherecordpricesrecordedinRGGIinlate2021.44DespitepricesincreasingacrossanumberofmajorCPIsinthepastyear,onthewholecurrentpricesremainshortoflevelsneededtodrivethetransformativechangeneededtoreachthe1.5°Ctargetorunlockinvestmentinessentialdecarbonizationpathways(seeFigure6).TheReportoftheHigh-LevelCommissiononCarbonPricesidentifiedaUSD50-100/tCO2erange(or“carbonpricecorridor”)asthepriceneededby2030tokeepglobalheatingtobelow2°C—theupperendofthelimitagreedintheParisAgreement—aspartofacomprehensiveclimatepolicypackage.xv,45Butlessthan4%ofglobalemissionsin2022arecoveredbyadirectcarbonpriceatorabovetheestimatedrangerequiredby2030.Further,morerecentestimatesindicateevenhigherpricesmaybeneededtoreduceemissionstonetzeroby2050—whichtheIntergovernmentalPanelonClimateChangesaysisnecessarytomeetthe1.5°Cgoal.Asurveyof30climateeconomistsconductedin2021estimatespricesofUSD50-250/tCO2ewouldbeneededtomeetthisgoal,withamedianforecastofUSD100/tCO2e.46Higherpricescoupledwithacoherentsetofcomplementarypolicymeasureswillbeneededacrossmostjurisdictionstoachievebothshort-termmitigationgoalsandlong-termnetzerostrategies.Thisisparticularlythecasefordrivingdecarbonizationinhard-to-abatesectorswherelow-carbonapproachesarelessdeveloped,particularlyexpensive,orsimplyunavailable.Someanalystssuggesttransformativeactioninhard-to-abatesectorswillrequirecarbonpricesontheorderofUSD100-170/tCO2eby2030.47Suchsectorsoftenrequiretechnologysolutionsinvolvinglow-carbonhydrogenandcarboncaptureandstorage,astheseoptionscancompetewithtraditionaltechnologiesandpracticesonlyifcarbonpricesareveryhighorothersupportingpolicesareinplace.48Achievingeconomicbreak-evenpoints—throughacombinationofcarbonpricingandtechnologyincentives—wouldbeamajorenablingdevelopmentforinvestmentindeepdecarbonizationpathways,whichareincreasinglytargetedfortheirimportancein“keeping1.5alive.”49Increasedtechnologydeploymentcantriggeravirtuouscyclebydrivingimprovedeconomiesofscale,learning,andfurthercostreductions.xvTheHigh-LevelCommission’sreportarguesthatawell-designedcarbonpriceisanindispensablepartofastrategyforreducingemissionsinanefficientway.However,italsoemphasizesthatcarbonpricingwillonlybeeffectivewhenadoptedaspartofacomprehensivepolicypackagethatincludesmeasurestotacklemarketfailuresotherthantheGHGexternality.xviNotethatcarbonpricingrevenuereferstotheamountofrevenuecollectedbygovernmentsthroughdirectcarbonpricinginstruments—thatis,fromcarbontaxespaidorallowancessoldthroughauctions.Carbonpricingaloneisunlikelytospurearlyinvestmentinthesedecarbonizationpathways.50Policymakersmustimplementtargetedmeasuresincludinginvestinginresearch,development,anddemonstrations,capitalandoperationalsubsidies,andpublicsupportforgreenhydrogeninfrastructureorhigh-voltagetransmissionlinestoachievenetzerotransformation.2.3CARBONPRICINGREVENUESINCREASESHARPLY,PARTICULARLYFROMETSsCarbonpricingrevenuesincreasedsharplyin2021,drivenlargelybyhighercarbonprices,asrevenuesgeneratedbyETSssurpassedrevenuegeneratedbycarbontaxesforthefirsttime.Globalcarbonpricingrevenuecollectedin2021wasaroundUSD84billion,representinganincreaseofoverUSD31billioncomparedto2020.xviAswithpreviousincreases,highercarbonprices,includingintheEUETS,whichaccountsforaround41%ofallcarbonpricingrevenue,aswellastheNewZealandETS(whichcommencedauctioningallowances)andtheCaliforniaCap-and-TradeProgram,drivetheincreaseincarbonrevenue.TwoETSsthatbeganoperationin2021,theUKETS(whichincludesrevenuepreviouslycollectedundertheEUETS)andtheGermanyETS,togetheraccountedforover16%oftotalcarbonpricingrevenuegeneratedin2021.ItisworthnotingthattheChinesenationalETSfreelyallocatedallallowancesduring2021.Asaresult,eventhoughitisthelargestETSinoperation(intermsofamountofemissionscovered),therewasnorevenuegeneratedfromtheChinesenationalETS.25FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE6CarbonpricesasofApril1,20222030carbonpricecorridorCarbontaxETSCarbonprice(USD/tCO2e)GeneraltaxrateReducedrateforLiquiﬁedPetroleumGasandnaturalgasinthegreenhouseindustry9-88TransportfuelsOtherfossilfuels59-85OtherfossilfuelsTransportfuels37-45F-gases19-34FossilfuelsFossilfuelsF-gases22-27UpperLower0.4-3.7GasolineAllotherfossilfuels28-43NominalpricesonApril1,2022areshownforillustrativepurposeonly.PricesarenotnecessarilycomparablebetweenCPIsbecauseof(forexample)differencesinthesectorscoveredandallocationmethodsapplied,speciﬁcexemptions,andcompensationmethods.The2030carbonpricecorridorisbasedontherecommendationsinthereportoftheHigh-LevelCommissiononCarbonPrices.Severaljurisdictionsapplydifferentcarbontaxratestodifferentsectorsorfuels.Inthesecases,wehaveindicatedtherangeoftaxratesapplied,withthedarkblueshadingshowingthelowerrateandthecombineddarkblueandlightblueshadingrepresentingthehigherrate.020406080100120140PolandMassachusettsShenzhenUkraineKazakhstanFujianJapanSingaporeMexicoTianjinTokyoChileColombiaArgentinaChongqingBeijingHubeiChinaShanghaiSouthAfricaGuangdongRGGITamaulipasSpainLatviaKoreaSloveniaBritishColumbiaUnitedKingdomPrinceEdwardIslandPortugalDenmarkCaliforniaQuébecNorthwestTerritoriesGermanyIcelandCanadaAlbertaNewBrunswickNewfoundlandandLabradorSaskatchewanCanadaBritishColumbiaNewBrunswickNewfoundlandandLabradorLuxembourgIrelandNetherlandsFranceNewZealandSwitzerlandFinlandEuropeanUnionNorwayUnitedKingdomSwitzerlandLiechtensteinSwedenUruguay1314201532331077622<153648746491301301304040404040404040401717191924243131261111444555991379926FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE7xviiRevenuegeneratedpercarbonpricinginstrumentin2021ETSUSD56bnCarbontaxUSD28bnUnitedKingdomGermanyCaliforniaNewZealandOtherFranceCanadaSwedenBritishColumbiaJapanNorwayFinlandSwitzerlandOtherEuropeanUnionxviiThesizeoftherespectivewedgesreflectstherevenuesgeneratedbytherelevantinstrument(s).FIGURE8EvolutionofglobalcarbonpricingrevenuesovertimeCarbontaxETSETSrevenuessurpasscarbontaxrevenuesforthefirsttime74%66%53%53%51%33%26%34%47%47%49%67%$0$10$20$30$40$50$60$70$80$90201620172018201920202021BillionUSDForthefirsttimeever,revenuesgeneratedbyETSssurpassedrevenuesgeneratedbycarbontaxes.WhilecarbontaxeshavehistoricallygeneratedmorerevenuesthanETSs,thegaphasnarrowedinrecentyearsandin2021ETSsgeneratedovertwo-thirdsoftotalrevenue(seeFigure7andFigure8).ThislargelyreflectsthefactthatETSpricesarerisingfasterthanfixed-priceinstruments(seesection2.2).Asecondfactoristheincreasingshareofauctionedallowancesratherthanfreeallocation.AgoodexampleisNewZealand,whichrampedupauctioningin2021aspartofbroaderreformstoitsETS,aswelladditionalrevenuefromETSsthatbeganoperationin2021.DatacollectedbytheInstituteforClimateEconomicsindicatesthatmostETSrevenuecollectedin2020wasearmarkedandchanneledtospecificprojects,forinstanceenvironmentalordevelopmentprojects.Revenuefromcarbontaxesalsotendstobeearmarked,althoughahigherproportionisallocatedtoconsolidatedrevenueand,toalesserextent,redistributedthroughtaxexemptionsordirecttransfers.51However,categorizingrevenueusehascomplexities.Thereislimitedabilitytoaccountfornuancesinfiscalpolicies,suchaswhererevenueusecouldpotentiallybeassignedtomultiplecategoriesorwhererevenueisinpracticesetasideforspecificpurposes,butnotlegallyearmarked.Carbonpricingrevenuepresentsopportunitiestosupportasustainablerecovery,ortofinancebroaderfiscalreforms.ReformingexistingfuelexciseframeworksisafundamentalpartofIsrael’sproposedcarbontax,andUruguay’snewlyimplementedcarbontaxhasreplacedexistingfuelexcisecharges,withthecarbonrevenuebeingallocatedtofinancepoliciesthatpromoteGHGmitigationandadaptation.27FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXES2.4CROSS-BORDERAPPROACHESTOCARBONPRICINGAREINCREASINGLYINTHESPOTLIGHTCountriesareincreasinglymovingtowardcross-borderapproachesproposedinacademicandpolicyliterature,includingbordercarbonadjustments(BCAs),climateclubs,andminimumcarbonpricingarrangements.Thesenovelapproachescanhelpresolveasymmetricalambitionbutraisepoliticalandtechnicalchallenges,particularlyarounddeterminingtheequivalencyofcarbonpricingandclimatepolicies,moregenerally.Ascountriesincreasetheambitionoftheircarbonpricesandotherclimatepolicies,carbonleakagexviiiriskspresentimportantpoliticalconcerns.Whiletodateevidenceofcarbonleakageoccurringinpracticeisminimal,itremainsanimportantconcernforpoliticiansandindustrystakeholders.Theseconcernscanbeheightenedbythepresentcontextofincreasinginflationandrisingenergycommodityprices.Countriesareincreasinglylookingattrademeasuresasawaytoprotectagainstpotentialcarbonleakageasaresultofcarbonpricing.Mostcountrieshaveaddressedleakageconcernsbyprovidingexemptions,rebates,orfreeallocationofallowancestoexposedindustries.However,theseapproacheshavedrawbacks:reducingthecarboncostsignalpassedthroughthesupplychaincanhelpleveltheplayingfieldvis-à-visforeignproducts,butitalsoreducestheincentivetouseenergymoreefficientlyorswitchtolower-carbonproductsandprocesses.Inaddition,theseapproachestendtobecomelesseffectiveatmanagingcarbonleakagerisksatdeeperlevelsofdecarbonization,whenembodiedemissionsneedtoapproachzero.Consequently,countriesareincreasinglylookingforotherwaystoeventheplayingfieldandequalizecarbonpricesforimportsanddomesticallyproducedgoods.Cross-bordercollaborationisoneapproach,suchasthroughtheunilateralimplementationofaBCA,whichwouldapplydomesticcarbonpricingtoimports.ImplementingaBCArequiresthedevelopmentofmethodologiestoestimatetheemissionsembodiedingoods,xixaswellasthedegreetowhichthoseembodiedemissionshavealreadyfacedcarbonpricing.Despitechallenges,thepotentialtoadaptexistingandemergingtechnicaldevelopmentsonmeasuringembodiedemissionsmakescross-borderpricingapproachesappearfeasible.xviiiCarbonleakagereferstotheriskthatemissionsreducedinonejurisdictionareoffsetbyincreasedemissionselsewhere.Thiscanbetheresultofproductionincreasinginorbeingrelocatedtoanotherjurisdictionwithlaxeremissionconstraints(e.g.,ajurisdictionwithalower,orzero,carbonprice).Carbonleakageisaneconomic,political,andenvironmentalconcern:ItcanpotentiallytranslateintolossofGDP,jobs,andtaxrevenueinthemostambitiouscountries,creatingadisincentivetoact,andalsoreducetheefficiencyofclimatepoliciesbyshiftingemissionstolaxercountries,whichcanleadtoanincreaseinglobalcarbonemissions.Thereislittleempiricalevidenceofcarbonleakageoccurringtodate.Thisislikely,inpart,duetohistoricallylowcarbonpricesandthatmostexistingclimatepolicieshaveincludedmeasures(suchasexemptions)toreducecarbonleakageinhigh-risksectors.xixEmbodiedemissionsreferstothecarboncontentofaproduct.ItrelatestotheGHGemissionsreleasedduringtheproductionofthegood(notthecarbonphysicallycontainedinaproduct).xxCaliforniaalreadyoperatesappliesacarbonpricetoelectricityimports.TheEuropeanUnioncameastepclosertoadoptingaCarbonBorderAdjustmentMechanism.InJuly2021,theEuropeanCommissionpublisheditsmuch-anticipatedproposalforaCBAM(seeBox4).Whilenotthefirstsuchmechanisminexistence,xxtheEU’smechanismwouldbebyfarthelargest.Severaljurisdictions,includingUkraine,52Uruguay,53andTaiwan,China,54havealreadycitedtheCBAMproposalasadriverfortheireffortstoadoptadirectcarbonprice.AndthoughseveraltradingpartnershaveexpressedconcernsaboutthemechanismandhighlightedthepotentialtotakelegalactionorretaliatorymeasuresagainsttheEU,therehaveasofyetbeennoconcretemovestowardeitherresponse.55SeveralotherjurisdictionsarealsopursuingtheadoptionofBCAs.Canadaundertookconsultationsonabordermechanisminthefallof2021andinDecemberPrimeMinisterJustinTrudeaumandatedthefinanceministertodevelopanapproachtoapplyingaborderadjustmenttoemissions-intensiveimports,suchassteel,cement,andaluminum.56IntheUnitedKingdom,aparliamentarycommitteeiscurrentlyexploringthepossibilityofadoptingabordermechanism.57AndinJuly2021lawmakersintheUnitedStates,whichdoesnothaveacarbonprice,introducedlegislationtoapplyacarbontarifftofossilfuelimports,aswellasproductssuchasaluminum,steel,iron,andcement.However,itisunlikelythisproposalwillobtainthesupportitneedstobecomelaw.58BCAsareraisingimportantquestionsaroundresponsibilityforclimateaction.Theprinciplethatcountrieshavecommonbutdifferentiatedresponsibilitiesfortacklingclimatechangeaccordingtotheirabilitiesandhistoricalresponsibilitieshaslongbeenenshrinedininternationalclimatecooperation.Developingcountrieshavearguedthat,inunilaterallyapplyingcarbonpricingtoproductstheyproduce,wealthycountriesadoptingBCAsareviolatingthislong-establishedprinciple.59Atthesametime,therearealsocallsfordevelopedcountriestotakeresponsibilityforthecarbonfootprintoftheirconsumption,towardwhichaBCAwouldplayapart.InthecontextoftheEUCBAM,somehaveproposedexemptingleastdevelopedcountries,thoughothersarguethatthiswouldreducetheeffectivenessofthemechanism.60AnalternativeapproachtopromotingequityistodedicateCBAMrevenuestosupportingdevelopingcountrieswithlow-carbondevelopment.WhiletheEU’sinitialproposalwouldallocatemostrevenuestotheEUbudget,lawmakershaveproposedchannelingrevenuestoleastdevelopedcountriesinordertocompensateforthecoststhemechanismwillimplyforthem.6128FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX4TheEU'sproposedcarbonborderadjustmentmechanismxxiTheadoptionofaCBAMisakeycomponentoftheEU’sclimatestrategyanditsambitiontoachievenetzeroemissionsby2050whilesafeguardingcompetitivenessandavoidingcarbonleakage.UnderthedraftregulationsreleasedinJuly2021,theCBAMwouldeffectivelyinvolveapplyingacarbonpricetoimportsofcertaingoodstotheEU,proportionatetothegoods’“embodiedemissions,”ortheGHGemissionsgeneratedduringtheirmanufacture.Importersofcoveredgoodswouldberequiredtopurchaseemissioncertificatesproportionatetotheirembodiedemissions.ThepriceofthesecertificateswouldmirrorthatofEUETSallowances.TheCBAMisintendedtograduallyreplacethecurrentfreeallocationofallowancesasthemainmeasuretocombatcarbonleakageintheEUETS.Underthedraftproposal,themechanismwouldbephasedinproportionatetothephase-outoftheexistingfreeallocation.TheEuropeanCommissionwouldadjustthenumberofCBAMcertificatestobesurrenderedtoreflecttheextentoffreeallowancesallocatedundertheEUETS,whichwoulddeclineby10%eachyearovertheperiodto2035.Accordingtotheproposal,theCBAMwouldapplytotheimportofelectricityandspecifiedgoodsinthesteel,iron,cement,fertilizer,andaluminumsectors.TheproposalwouldinitiallyonlyapplytheCBAMtoScope1emissions,thoughimporterswouldneedtoreportonembodiedScope2indirectemissionsfromelectricityconsumption,leavingthedooropentoincludetheseemissionsinfutureyears.Embodiedemissionsforproductswouldbedeterminedintwoways:Calculationswouldbebasedonactualemissionsrecordedatinstallationlevel,verifiedbyaccreditedverifiers,whiledefaultvalueswouldbeappliedwhereimporterscannotshowactualemissionsgenerated.Forelectricity,calculationswouldprimarilyrelyonthird-countrydefaultvaluesthatcorrespondtoaverageCO2emissionfactorsinthecountry.xxiTheEuropeanCommissionpresenteditsfinaldraftregulationsfortheCBAMinJuly2021.SeeEuropeanCommission,“ProposalforaRegulationoftheEuropeanParliamentandoftheCouncilEstablishingaCarbonBorderAdjustmentMechanism,”July14,2021.xxiiTheproposedregulationallowsforthepossibilityoffurtheractswhichincreasethenumberofCBAMexemptions.Suchcaseswouldincludeathirdcountry’sinclusionintotheEUETS,oralinkageagreementbetweentheEUETSandthecountry’sownemissiontradingsystem(asisthecaseforSwitzerland).ImporterswouldbeabletoavoidorreducepotentialcostsimposedbytheCBAMinanumberofways.First,importsfromcountriesthatparticipateintheEUETS,orhaveadomesticETSlinkedtothem,wouldbefullyexempt.xxiiSecond,goodsthataresubjecttoadirectcarbonprice(i.e.,acarbontaxorETS)intheircountryoforiginwouldbeeligibleforarebateequaltothepricealreadypaidpriortoexport.Third,electricityimportsfromcountrieswhoseelectricitymarketsareintegratedwiththatoftheEUwouldbeexempt.TheproposalfortheCBAMiscurrentlyunderreviewbytheEuropeanParliamentandtheEuropeanCouncil.Potentialamendmentsproposedintheparliamentincludemakingthe2025-2028transitionalperiodshorterandsooner,to2023-2024,eliminatingEUETSfreeallocationmuchmorerapidly.Scope2emissionsfromelectricityusemightbeincluded,anduseofCBAMrevenuesmightbebettertargetedtosupportclimateactionoutsidetheEUbloc.InMarch2022,theCouncilreleasedadrafttextpushingforCBAMissuesrelatingtofreeallocationphase-outandexportrebatestobepartoftheupcomingEUETSreview.ThismovehasbeensuggestedtostreamlinethefinalizationoftheCBAMregulationandshiftdecision-makingpowerfromfinanceministerstoenvironmentministers,consideredbetterpositionedtoaddresstheseissues.TheFrenchPresidencyoftheEUisaimingtoachieveagreementonthemeasureamonglawmakersbyJune2022,thoughitisasyetunclearifthiswillbeachieved.29FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESChallengesindeterminingtheequivalencyofclimatepolicyinstrumentsarefuelingdebatesoverthedesignofBCAs.ApplyingBCAsfairlyandeffectivelyrequiresthedevelopmentofmethodologiestoestimatetheemissionsembodiedinimports,aswellasthedegreetowhichthoseembodiedemissionshavealreadyfacedcarbonpricingorsimilarpolicies.Whilemethodologiesfordomesticoutput-basedallocationhavelongofferedwaystoestimateembodiedemissions,xxiiiestimatingwhethertheyhavealreadybeensubjecttoequivalentcarbonpricingmeasuresislessstraightforward,giventhepresenceoffreeallocation,small-firmexclusions,orenergytaxexemptions.Indirectcarbonprices(seesection1.2),suchasthoserelatedtofuelexcisetaxesorfuelsubsidies,alsohavecomplexinteractionswithdirectcarbonpricingandcaninfluencecarbonleakagerisks.ThisdebateiscurrentlyplayingoutinthedesignoftheEUCBAM,wherekeytradingpartnersarguethatstrongclimatepolicies,ratherthanonlycarbonpricing,shouldberecognized.However,theEUhassofarbeenreluctanttorecognizeotherpolicies,arguingthatdeterminingequivalencybetweenpoliciesisfraughtwithcomplications.Thepotentialestablishmentof“climateclubs”xxivcouldprovideaforumtoadoptmutualagreementsondecarbonizationthatcouldprovideanalternativepathtorecognizingequivalency.Forexample,theproposedUS-EUCarbon-BasedSectoralArrangementonSteelandAluminumTradeaimstoestablishcommondefinitionsoflow-carbonsteelthroughmutuallyagreedtradearrangements.Germanyhas,moreover,includedtheestablishmentof“anopenandcooperativeinternationalclimateclub”amongitspolicyprioritiesforitspresidencyoftheGroupofSeven(G7)in2022,xxvaproposalthathasgainedsupportamongotherEUcountries.62Itisasyetunclearwhethersucharrangementswouldbecomplementaryoralternativetoothertrademechanisms,suchastheCBAM.Whilethesetypesofclimateclubapproachespotentiallyprovideamodelforsidesteppingsomeofthecomplexconsiderationsaroundpolicyequivalency,theywilllikelyrequiresomewayofdifferentiatingbetweenlow-andhigh-carbonexporters.WhileBCAscanofferincentivestoexportingproducerstoadoptmoreclimate-friendlypractices(i.e.,improveemissionsintensityofgoods),climateclubswouldleveragetrademeasurestoincentivizeforeignjurisdictionstoadoptmoreambitiousclimatepolicies.However,climateclubshavethepotentialtodisadvantagelower-incomecountries,wheretheyarenotabletomeetmembershipcriteriasetbymoreadvancedeconomies.ThiscouldbexxiiiForexample,emissionsintensitybenchmarkingapproachesintheEU,Canada,andNewZealand.xxivTheterm“climateclub”hasbeenusedindifferentcircumstancesandcancapturearangeofframeworks.WilliamNordhausdevelopedtheconceptofaclimateclubas“anagreementbyparticipatingcountriestoundertakeharmonizedemissionsreductions,”withmembersreceivingbenefits,whilenonmembersarepenalized.Inthisreport,theterm“climateclubs”isusedinageneralwaytocaptureformalizedagreementsbetweencountriesaimedatpromotingclimatemitigationoutcomes.W.Nordhaus,“ClimateClubs:OvercomingFree-ridinginInternationalClimatePolicy,”AmericanEconomicReview105,no.4,(2015).xxvWhiletheinitialproposalhasbeenlaunchedinthecontextoftheG7,itwouldinprinciplebeopentoallnationsandGermanyisconsideringbroadeningtheproposaltotheG20,whichincludesmajoremergingeconomiessuchasChina,India,andBrazil.addressedthroughpolicydesign,suchasthroughatieredpricingstructurereflectinglevelofdevelopment.Interestintheestablishmentofcommonorminimumstandardsforcarbonpricingacrossjurisdictionsisincreasing.Themostambitiousoftheseapproacheswouldbetheadoptionofaminimumpriceoncarbonor“internationalcarbonpricefloor,”eithergloballyoramonglargeemittingcountries.Thelattercouldprovideamoremanageable“mini-lateral”approach,toallowscalingambitionbyaddressingconcernsthatcompetitorswillgainanunfairadvantageduetolower(orno)carbonprices.Inaddition,aminimumcarbonpricecanbeappliedmorebroadlythanotherapproaches(suchasBCAs),whichonlytargettradedproducts.TheIMF63andtheWTO64havecalledfortheestablishmentofsuchamechanism,ashavevariousacademicsandaUN-convenedgroupofglobalassetownersresponsibleformanagingUSD6.6trillion.65BothCanada66andFrance67haverecentlyjoinedthecallforaninternationalpricefloor,thoughtheFrenchproposalonlycoversEUmemberstates.Germany’sproposedclimateclubwouldfocus,amongotherthings,on“uniformstandards”forcarbonpricing,whichcouldincludetheestablishmentofaminimumpricefloor.68However,aninternationalcarbonpricefloorposessomechallenges,includingtheneedtounderstandequivalencyofcoveragebetweenjurisdictions’carbonpricesandtoaccountforequityissuesacrossparticipatingcountries.Movestolinkemissionstradingsystemsinthepastyearhavebeenlimited.Whilelinkinghasbeenafocusintherecentpastforinternationalcooperationoncarbonpricing,itpresentsahostofcomplexchallengesandonlyasmallnumberofjurisdictionshavesofarmanagedtolinktheirsystems.Developmentsoverthepastyearhavebeenlimitedinthisregard.CaliforniaandQuébecannouncedtheirintentiontoexploreopportunitiesforfuturecarbonmarketalignmentwithNewZealandundertheWesternClimateInitiative.69WashingtonState,whichwilllaunchitsnewcap-and-tradeprogramonJanuary1,2023,70willnotlinktotheinitiativeattheoutset,althoughitmaydeveloparegulationenablingfuturesuchlinkage.71However,theinternationalcarbonmarketrulesagreedatCOP26inGlasgowprovidesomewelcomecertaintyregardingtheimplicationsoflinkingforcountries’nationalmitigationtargets(seeBox5).30FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX5Article6rulesonlinkingemissionstradingsystemsThefinalizedArticle6RulebookallowscountriestoestablishthelinkingoftheirdomesticETSsasa“cooperativeapproach”underArticle6.2.xxviDoingsorequireslinkingpartnerstoestimatetheincreaseorreductionofemissionsintheirjurisdictionincentivizedbythetradeofallowances,andtranslatethisnetamountintointernationallytransferredmitigationoutcomes(ITMOs).TheseITMOsarethenaccountedforintheArticle6reportingstructures,enablingthelinkingpartnerthathasreduceditsemissionsthroughalinkedETStousethesereductionstowardachievingitsNDCtarget.Inversely,thelinkingpartnerthathaseffectivelyincreaseditsemissionsthroughthelinkingprogramwillneedtoreflectthisincreaseinemissionsinitsreportingaswell.72xxviCountriesmayalsodecidenottoaccountforthelinkorcommunicatetwoseparateNDCtargetsforETSandnon-ETSsectors.Seee.g.,L.Schneider,J.Cludius,andS.LaHozTheuer,AccountingfortheLinkingofEmissionTradingSystemsunderArticle6.2oftheParisAgreement,InternationalCarbonActionPartnership,2018.2.5RISINGENERGYPRICESCREATECHALLENGESANDOPPORTUNITIESFORCARBONPRICINGExistingpoliticalchallengesinadoptingandexpandingcarbonpricinghavebeenamplifiedasglobalenergypriceshaveincreased,puttingpressureonindividualhouseholdbudgets.Ensuringcarbonpricingisfair,andseentobefair,willbecrucialinbuildingandmaintainingpublicsupport.Globaloilandgaspriceshavesharplyincreasedinthepastyear,fueledbyacombinationofgrowingdemandduetopost-COVIDeconomicrecovery,supplyconstraints,and,morerecently,thewarinUkraine.Europeangaspricesarenowattheirhighestlevelsever,whileglobaloilpricesareattheirhighestlevelsinalmostadecade.xxviiAEUcommitmenttoreducerelianceonRussianoilandgasinthewakeoftheinvasionofUkrainemeanwhilehasthepotentialtoincreasegaspricesfurther.73Thesuddenenergypriceincreasesandcorrespondinginflationisputtingpressureongovernmentstoshieldconsumersandvulnerablehouseholdsfromenergypoverty,byregulatingorcappingenergyprices,introducingsubsidies,orscrappingsurcharges.Whiletypicallyonlyappliedforalimitedtime,anymeasuresthatdirectlyreducethepriceofenergywoulddampenincentivestoreduceemissions.Thecurrentpoliticalandeconomiccontextpresentsbothchallengesandopportunitiesforcarbonpricing.Ineconomieshighlyexposedtofuelprices,new,expanded,orincreasedcarbonpriceswouldresultinadditionalpricepressureonconsumersinacontextwherecitizensandbusinessesarealreadystrugglingtopaytheirenergybills.IntheEU,somememberstateshaveeitherexpresseduneaseoraskedtosuspendextensionandreformplansoftheEUETS,duetoworriesabouttheeffectofthepolicyontheenergypoor.74Intheshortterm,highpricesmayleadtoreducedenergyusebutwillnotprovideinvestorsinlow-carbonprojectswiththekindoflong-termcertaintythatastablecarbonpricedoes.Governmentscanalsousecarbonpricingtoprovidealonger-termincentivetoincreasedomesticrenewableenergyproduction,whichcanhelpreducerelianceonforeignenergyandprovidesomeprotectionagainstglobalenergypriceshocks.Backlashagainstenergypriceincreasesisparticularlystrongwhentheyareperceivedtodisproportionatelyaffectvulnerablepopulations.Widespreadproteststriggeredbytheremovalofliquifiedpetroleumgas(LPG)subsidiesinKazakhstaninxxviiDataobtainedfromhttps://tradingeconomics.com/.31FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESearly2022sprangfromthewesternMangystauregion.Thisregionproducesmostofthecountry’soilbutisamongitspoorestregions,andahighshareofresidents’vehiclesrunonLPG.75Theprotestsexposeddeepunderlyingdiscontentamidrisinginequalityandfoodcostsandasensethatthegovernmentwasnotactinginthebestinterestsofthecommunity,andprotestors’demandsquicklyexpandedbeyondfuelpricestoencompassbroaderpoliticalreform.76Thisisinlinewithpreviousstudies,includingrecentresearchfromtheIMF,whichindicatesthatintroducingCPIsincountrieswithhighinequalityandlowersocialspendingtendstotriggerastrongerbacklash.TheKazakhstangovernmentultimatelyagreedtorollbacktheenergypolicyreformsandplaceacaponfuelprices.77Aligningcarbonpricingandrelatedpolicyaroundachievinga“justtransition”iscentraltobuildingandmaintainingsupportamidhighenergyprices,inflation,andthecontinuedneedfordeepertransformation.Keyimperativesofajusttransitionincludecreatingreliableworkandqualityjobs,andensuringat-riskregions,industries,communities,workers,andconsumersshareinthebenefitsofagreentransition.78Policymakersincreasinglyrecognizeajusttransitionaskeynotonlytoensuringequityinclimatepolicy,butalsoinbuildingthesupportneededtoadoptandsustainit.WashingtonState’scap-and-tradeprogramwasadoptedaspartofabroaderclimatepackagethatalsoseekstotackleenvironmentalracism.79InCanada,civilsocietyisincreasinglycallingforaJustTransitionActaspartofstrongerclimateaction,includingtherecentlyincreasedcarbonprice.80Indonesia’sMinistryofNationalDevelopmentPlanningrecognizedtheimportanceofallocatingashareoftheirfuturecarbontaxrevenuesforinvestmentsthatwillsupportajusttransitioninarecentreport,81andinSouthAfrica,thepresidenthasestablishedaPresidentialClimateCommission,which,amongotherpriorities,istaskedwithdefiningtheJustTransitionFrameworkforthecountry.Finally,theEUhasadoptedarangeoffundsandpoliciesdesignedtooffsettheimpactsofitsclimatestrategy—ofwhichtheEUETSisakeypart—onvulnerablepopulationsandsectors(seeBox6),andsomelawmakersseetheinclusionoftargetedsocialinvestmentsascrucialtosupportingaproposedsecondETSforbuildingsandtransport.82Implementingjusttransitionstrategiescanbepartiallyfinancedthroughcarbonpricingrevenues.InPennsylvania,theUSstatethathassignaledjoiningtheRGGIin2022,revenueraisedthroughtheproposedcap-and-tradesystemwill,amongotherthings,beusedtosupportemployeesinthefossilfuelindustrytotransitiontoothersectors.83Irelandalsoannouncedthattheadditionalrevenuesfromthe2022carbontaxincreasewillbeusedtosupportinitiativesthatensureajusttransition,includingthroughincreasedspendingonsocialwelfareandpreventionoffuelpoverty.84BOX6JusttransitionintheEU’sclimatepolicyTheEU’sFitfor55PackageincludesanumberofmeasurestostrengthentheEU’sclimateperformance.EUETSrevenueswillbenefittheSocialClimateFund,whichwillprovidefundstoaddresstheimpactsofextendingtheEUETStotheroadtransportandbuildingsectoronvulnerablehouseholds,micro-enterprises,andtransportuserstocushionthefinancialimpactsoncitizensandbusinesses.85TheEuropeanCommissionalsoissuedguidanceforafairandinclusivetransition.86Earlier,theEuropeanGreenDealalsointroducedtheJustTransitionMechanismtoprovidetargetedsupporttoregionsaffectedmostbythetransitiontoaclimate-neutraleconomy.8732FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESChapter3Carboncrediting-marketsandmechanismsCarboncreditmarketsareatacrossroads.Strongvoluntarydemandandbroadeningmarketdiversity—expressedthroughnewbuyers,marketniches,tradinginfrastructure,anddistinctpricingandpreferences—havedriventhemarketdynamicsofthepastyear.Atthesametime,asthemarketgrows,theroleofcarboncreditinginmeetingemissionsgoalsisattractinghigherscrutiny.Tosustaincurrentgrowth,marketactorswillneedtocollaboratetosupporthighstandards,protectenvironmentalintegrityandcredibility,anddeepenliquidity.Specializedgovernancebodies,financialservices,andnewtechnologicalinfrastructuresareemergingtosupportsolutionstoscalingupmarketsandensuringintegrity.3.1CARBONCREDITMARKETSAREGROWINGRAPIDLY,LEDBYVOLUNTARYMARKETACTIVITYThegrowthofcarboncreditmarketshasacceleratedfurtheroverthepastyear,withissuances,transactions,andpricesallrisingsharply.NewcarbonmarketrulessetatCOP26inGlasgowhavecreatedadditionalcertaintythatmayhelpinternationalcompliancemarketsdevelopfurtherincomingyears.Fornow,mostmarketactivityremainscenteredonthevoluntarycarbonmarket.Carboncreditmarketsgrew48%in2021.Thetotalnumberofcreditsissuedxxviiifrominternational,domestic,andindependentcreditmechanismsxxixincreasedfrom327millionto478million.Thisisthebiggestyear-on-yearincreasesince2012,thepeakofcarboncreditissuance(Figure9).Thetotalnumberofcreditsissuedsince2007isaround4.7billiontCO2e.xxviiiCreditsmaybegeneratedfromprojectsassoonastheemissionsremovalsorreductionstakeplace;however,creditswillonlybeofficiallyissuedoncetheyhavebeenreviewedandverifiedbytherespectiveauthorities.xxixTheindependentmechanismsincludedarethosewiththehighestissuances:AmericanCarbonRegistry,ClimateActionReserve,GoldStandard,theVerifiedCarbonStandardfromVerra,PlanVivo,andtheGlobalCarbonCouncil.33FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE9Globalvolumeofissuancesbycreditingmechanismcategory01002003004005006007008009001000200720082009201020112012201320142015201620172018201920202021MilliontCO2eIndependentmechanismsInternationalmechanismsDomesticmechanismsVeriﬁedCarbonStandard(62%)TaiwanOffsetProgram(2.6%)CaliforniaOffsetProgram(3.6%)AmericanCarbonRegistry(2%)GoldStandard(9%)CDM(11%)ClimateActionReserve(1%)AustraliaEmissionReductionFund(3.6%)34FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX7UnderstandingcarboncreditmarketsGlobalcarboncreditmarketsconsistofadiverserangeofsourcesofsupply,sourcesofdemand,andtradingframeworks.Supplyderivesfromdifferenttypesofcreditingmechanisms,includingthefollowing:•Internationalcreditingmechanismsestablishedunderinternationaltreaties—theKyotoProtocol(includingtheCleanDevelopmentMechanism[CDM])andtheParisAgreement.xxx•Domesticcreditingmechanismsestablishedbyregional,national,orsubnationalgovernments,suchastheCaliforniaComplianceOffsetProgramandtheAustraliaEmissionsReductionFund.•Independentcreditingmechanismsincludesstandardsandcreditingmechanismsmanagedbyindependent,nongovernmentalentities,suchasVerraandGoldStandard.Demandderivesfromarangeofcomplianceobligationsestablishedunderinternationalagreementsandnationallaws,aswellasvoluntarycommitmentsadoptedbycompanies,governments,andotherorganizations.Whilemostcarboncreditstendtoattractarangeofdifferentkindsofbuyers,meaningthatfewsourcesofsupplycanbematchedwithonlyonesourceofdemand,itispossibletoidentifyfourbroadsegments,largelybasedondemanddrivers:1.Internationalcompliancemarketsprimarilyrespondtocommitmentsmadeunderinternationalagreements.Theyprimarilyconsistof(i)countriesvoluntarilypurchasing/utilizingcreditsor“mitigationoutcomes”recognizedunderinternationaltreatiestohelpmeettheiremissionreductioncommitments(previouslyestablishedundertheKyotoProtocolandmorerecentlytheParisAgreement);and(ii)airlinespurchasingcreditseligibleformeetingtheirobligationsestablishedundertheCarbonOffsettingandReductionSchemeforInternationalAviation(CORSIA).xxxixxxArticle6oftheParisAgreementprovidestheframeworkforinternationalcarbonmarkets:Article6.4establishesacentralizedmechanismsupervisedandgovernedbytheUNFCCC,whichisexpectedtobeadministrativelysimilartotheCDMoftheKyotoProtocol,andArticle6.2,ontheotherhand,providesabasisforbilateralorplurilateralvoluntarycooperationamongcountries,whichpotentiallyoffersflexibilitytoreduceGHGemissionsfromavarietyofprocesses,mechanisms,andstandards.xxxiOneofthekeyfeaturesthatdistinguishesinternationalcompliancemarketsfromvoluntarymarketsisthemandatoryauthorizationbythegovernmentsinwhosejurisdictionthecreditsaregeneratedandtransferredfrom.UndertheParisAgreement,thesaleandpurchaseofcarboncreditsrequiresaccountingbyPartiestotheParisAgreementthrougha“correspondingadjustment.”Whileinternationalcompliancemarketsexclusivelytradecreditsthatareauthorized(i.e.,includeacommitmentforcorrespondingadjustmentsbythesellergovernment),voluntarycarbonmarketsmayalsotradeincreditsthatarenotaccompaniedbysuchauthorization.2.Domesticcompliancemarketsinvolvecompaniespurchasingcreditsthatareeligibleformeetingtheirobligationsunderadomesticlaw,usuallyanETSoracarbontax.Thesemayincludecreditsissuedunderinternational,domestic,orindependentcreditingmechanismsdependingontherulesestablishedbyrespectivegovernments.3.Voluntarycarbonmarketsconsistof(mostlyprivate)entitiespurchasingcarboncreditsforthepurposeofcomplyingwithvoluntarymitigationcommitments.Theylargelyconsistofcreditsissuedunderindependentcreditingstandards,thoughsomeentitiesalsopurchasethoseissuedunderinternationalordomesticcreditingmechanisms.4.Results-basedfinancerefers,inthecontextofthecarbonmarket,topurchasesofcarboncreditsbygovernmentsorinternationalorganizationsforthepurposeofincentivizingclimatechangemitigationormeetingnationaltargets.Results-basedfinancecanalsorefertobroaderpaymentsinreturnfortheachievementofemissionsreductions,withoutanytransferofcreditsorotherownership.Thelinkagesandoverlapsacrosscomplianceandvoluntarymarkets,aswellasinternationalanddomesticmarkets,continuetoevolve.35FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE10StylizedrepresentationoftypesofcarboncreditingmechanismsandmarketsegmentsxxxiiInternationalcreditingmechanismse.g.CDM,Art6.4Independentcreditingmechanismse.g.VCS,GoldStandardMARKETSEGMENTSSOURCESOFSUPPLYRegional,national,andsubnationalcreditingmechanismse.g.CaliforniaComplianceOffsetProgramVoluntarycarbonmarketCreditpurchasesaimedatmeetingvoluntarytargetsorcommitmentsDomesticcompliancemarketsCreditpurchasesaimedatcomplyingwithobligationsundercarbontaxes,ETSResults-basedﬁnanceCreditpurchasesaspublicpolicytoolforincentivizingmitigationInternationalcompliancemarketsCreditpurchasesaimedathelpingcountriesmeettheirNDCsandairlinescomplywithCORSIAxxxiiDuetotheheterogeneityandinteractionbetweenthedifferentcarbonmarkets(describedinBox7)theremaybeapotentialoverlapbetweenissuancesfrominternationalandindependentmechanismswithdomesticmechanisms,assomejurisdictionsreissuecreditsfromindependentmechanismswheretheymeetspecificdomesticcriteria.Toreducethisduplication,issuedcreditsregisteredinmorethanoneregistryareaccountedforundertherelevantdomesticmechanisms(e.g.,creditsissuedbytheClimateActionReserveandAmericanCarbonRegistrythatmeetspecificrequirementstobeusedinthecap-and-tradearecountedforbytheCaliforniaOffsetProgram).Thevastmajorityofnewissuancescamefromprojectsregisteredunderindependentcreditingmechanisms,whileissuancesfrominternationalanddomesticcreditingmechanismsincreasedataslowerpace.Thisrepresentsamajorturnaroundinthepastdecade(seeFigure9).In2021,creditissuancefromindependentstandardsgrewby88%,totaling352millioncreditsandrepresenting74%ofthesupplyofcarboncreditsthatyear.Incontrast,issuanceundertheCDMrepresented11%oftotalissuancesandgrewby25%inthesameperiod,withnonewregisteredprojectsin2021.Thisreflectstheuncertaintyoverthemechanism’sfuturepriortoclarificationatCOP26onwhethersomeCDMprojectswouldbeabletotransitiontothenewArticle6.4mechanism.TheCDMwilllikelycontinueitsgradualphasedownoverthecomingyears,pendingitsreplacementbyanewinternationalmarketmechanism.Issuancefromdomesticmechanismsrepresented15%oftotalissuances,ledbytheCaliforniaComplianceOffsetProgramandAustralia’sEmissionsReductionFund(seeFigure11).36FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE11Creditissuanceandnumberofprojectsin2021,bycategoryofmechanismsCreditsissued(MtCO2e)CreditingmechanismsIndependentmechanismsInternationalmechanismsDomesticmechanisms4.838.8343.79295.08AmericanCarbonRegistryClimateActionReserveGoldStandardVerifiedCarbonStandard0.040.13PlanVivoGlobalCarbonCouncil59.490.3917.0417.420.330.930.28J-CreditSchemeCleanDevelopmentMechanismAlbertaEmissionOffsetSystemAustraliaEmissionReductionFundCaliforniaComplianceOffsetProgramFujianForestryOffsetCreditingMechanismGuangdongPuHuiOffsetCreditingMechanism1420.185.2006.400.861.4012.413.03QuébecOffsetCreditingMechanismRepublicofKoreaOffsetCreditMechanismSaitamaForestAbsorptionCertificationSystemSaitamaTargetSettingEmissionsTradingSystemSwitzerlandCO2AttestationsCreditingMechanismTaiwanGHGOffsetManagementProgramThailandVoluntaryEmissionReductionProgramSpainFES-CO2programNumberofprojectsregistered592184451110110333832044328150132032Thereispotentialforoverlapwheredomesticmechanismsrelyoncreditsinitiallyissuedbyotherexistingmechanisms.37FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESForthefirsttime,thetotalvalueofthevoluntarycarbonmarketexceededmorethanUSD1billioninNovember2021.88ThemarkethasfurthergrowntoUSD1.4billionasofthewritingofthisreport,accordingtoEcosystemMarketplace.xxxiiiThisrapidincreaseinvaluereflectsbothrisingpricesandrisingdemandfromcorporatebuyersleadingtohighertransactedvolumes.GlobalaveragecarboncreditpricesxxxivmovedfromUSD2.49/tCO2ein2020toUSD3.82/tCO2ein2021,whilethevolumeofcreditstransactedinthevoluntarymarketexceeded362millioncredits,92%morethanin2020.89Whilepricescontinuedtorisein2021,additionalsupplyfromsurgingprojectregistrations,newcreditissuance,andreducedretirementshaveslowedtherateofincrease.Atthesametime,corporateinterestinusingcreditstomeetclimategoals,alongwithtradersandinvestorshopingtoturnaprofitoncontinuedpriceincreases,hassupportedincreasedmarketvalueandliquidity.Demandfromdomesticcompliancemarkets,suchascarbontaxesandETSs,remainssmall,butthismaychangeovertimewithagreementonArticle6rules.Manycarbonpricinginstrumentsallowentitiestousecarboncreditstomeettheirobligations.However,mostrestrictcreditstothosegenerateddomesticallyorlimittheamountthatcanbeusedforoverallcompliance.xxxvWhilemanyjurisdictionshaveestablishedtheirowndomesticcreditingmechanismsformeetingtaxorETSobligations(seeFigure12),fivecountriessofarrelyoncarboncreditsissuedbyexistingcreditingmechanisms.xxxviRulechangesinsomeETSs,includingnewrestrictionsonthevolumeandtypeofcarboncreditsthatcanbeusedinCalifornia’sCap-and-TradeProgramandtheexclusionofcreditsfromtheSwitzerlandETSandEUETSfrom2021,arelikelytoreducedemand.90WhileinthecaseofSwitzerland,xxxiiiVoluntarycarbonmarketdataisprovidedbyForestTrends’non-profitinitiativeEcosystemMarketplace.EcosystemMarketplacedatacontainstradedetailssuchasprice,volume,andothercarboncreditprojectandtransactionattributes.Thedatasetfor2021hadnotbeenfinalizedbythetimethisreportwaspublishedandthereforemarketvaluefiguresdonotrepresentacompleteannualpicture.However,EcosystemMarketplace’sdatasetremainsthemostcomprehensiveavailableforthe2021calendaryear.EcosystemMarketplacewillreleaseupdated2021figureslaterin2022oncedatafromallrespondentshasbeencollected.xxxivThepricesshownherearefromEcosystemMarketplaceandareaglobalrepresentationofbothover-the-counter(OTC)transactionpricesandtradingplatformclearedtransactionprices,combined.TheyarelowerthanstandardizedpricessuchasthePlattpricesshowninFigure13.Thispricedifferencemaybeduetothefactthatpricesforstandardizedcontracts—transactionsinvolvingpackagesofcarboncreditswithcertifiedcommoncharacteristics(projecttype,vintages,and/orissuingstandards)andsoldasstandardproductsbycarbonexchanges—incorporatetheadditionalcostsofex-antescreeningandqualityassessmentactivitiesperformedbystandardizedcreditproviders,whichisnotthecaseinOTCtransactions.Thispricedifferencemayalsobeduetodifferencestheyearofpublication—Figure13showspricesfor2022comparedtoEcosystemMarketplacepricesfor2021.xxxvTheexceptionsincludeKorea’sETSandMexico’sCarbonTax.Korea’sETS,asof2021,permitsemitterstouseinternationalcreditsforthefull5%ofeligibleoffsetuse.InternationalcreditsmustbeCDMprojectsthatareinpartowned,funded,oroperatedbyaKoreancompany.SeeWorldBank,)“CarbonPricingDashboard:KoreaETS,”2022;andICAP,“EmissionsTradingSchemeDashboard,”2021.Mexico’sCarbonTaxpermitscoveredentitiestousecertifiedemissionreductionsfromtheCDM,providingtheyareeligibleforcomplianceintheEUETS.SeeWorldBank,“CarbonPricingDashboard:MexicoETS,”2022xxxviTheseschemesareColombia’sCarbonTax,SouthAfrica’sCarbonTax,China’sregionalandnationalETSschemes,Korea’sETS,andMexico’sCarbonTaxandpilotETS.xxxviiICAP,“SwitzerlandRevisesETSRulesonCap,Allocation,andOffsets,”ETSNews,December3,2020;seeSection5oftheAB-398CaliforniaGlobalWarmingSolutionsActof2006:Market-basedcompliancemechanisms:firepreventionfees:salesandusetaxmanufacturingexemption.(2017amendment).xxxviiiThebaselinewasinitiallyintendedtobederivedfromaverageemissionsoverthe2019-2020period.However,followingthemajordropinpassengernumberscausedbytheCOVID-19pandemic,theICAOCouncildecidedtobuildthebaselinesolelyon2019emissions.thismoveispartofabroaderstrategytoraiseambitionandbringthenationalETSinlinewiththeEUETS,inCalifornia,therestrictionswerelargelymotivatedbyconcernsovertheimpactofoffsetsonenvironmentaljusticeissues.Theamendmenttotheoriginalcap-and-traderegulationspecifiesthat50%ofallprojectsmust,from2021,directlybenefitairandwaterpollutionissueswithinthestate.xxxviiDemandfrominternationalcompliancemarketschangedlittleoverthepastyear.TheInternationalCivilAviationOrganization(ICAO)CORSIApilotphasestartedonJanuary1,2021,butdemandfromCORSIAremainsverylimitedasinternationalairtravelremainsdepressedbytheongoingCOVID-19pandemic,aswellastheICAOCouncil’sdecisiontouse2019emissionsasthebaselineabovewhichcreditsmustbesurrendered.Whiledemandforflightsrecoveredsomewhatin2021comparedwith2020,itwasstill75%below2019levels.91ChoicesbyICAOxxxviiiledtoless-stringentshort-termdecarbonizationrequirementsforairlinesandhaslargelyeliminateddemandintheimmediateterm.Moredemandcouldemergelaterthisdecade,andrecentanalysissuggeststhatevenunderamediumCOVID-recoveryscenarioGHGemissionsfromglobalairtravelwillexceed2019levelsby2024.92Inaddition,EcosystemMarketplacehasreportedthatwhileCORSIA-eligiblecreditsarenotbeingpurchasedforcompliancepurposes,theyarebeingboughtandsoldatapremiumtonon-CORSIAcreditssoldtocorporateend-usersandintermediaries,assomecorporatebuyersseeCORSIAeligibilityasasignthatminimumqualitystandardshavebeenmet.9338FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE12MapofnationalandsubnationalcreditingmechanismsCirclesrepresentcreditingmechanismsinsubnationaljurisdictionsandcities.“Implemented”creditingmechanismshavetherequiredframework(e.g.,legislativemandate)aswellasthesupportingprocedures,emissionreductionprotocolsandregistrysystemsinplacetoallowforcreditingtotakeplace.ImplementedUnderdevelopmentSriLankaCarbonCreditingMechanismSouthAfricaCreditingMechanismIndo-PacificCarbonOffsetsSchemeMexicoCreditingMechanismKazakhstanCreditingMechanismCanadaFederalGHGOffsetSystemThailandVoluntaryEmissionReductionProgramTaiwanGHGOffsetManagementProgramSpainFES-CO2ProgramSwitzerlandCO2AttestationsCreditingMechanismAustraliaEmissionsReductionFundChinaGHGVoluntaryEmissionReductionProgramColombiaCreditingMechanismChileCreditingMechanismCaliforniaComplianceOffsetProgramJointCreditingMechanismRepublicofKoreaOffsetCreditMechanismJ-CreditSchemeRGGICO2OffsetMechanismAlbertaEmissionOffsetSystemQuébecOffsetCreditingMechanismBritishColumbiaOffsetProgramSaskatchewanGHGOffsetProgramTokyoCap-and-TradeProgramBeijingForestryOffsetMechanismBeijingParkingOffsetCreditingMechanismGuangdongPuHuiOffsetCreditingMechanismSaitamaTargetSettingEmissionsTradingSystemSaitamaForestAbsorptionCertificationSystemChongqingCarbonOffsetMechanismFujianForestryOffsetCreditingMechanism39FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESWhetherCORSIAwillbeasignificantsourceofdemandinthelongertermremainsunclear.Whileaquickrecoveryfromthepandemicwouldresultincomplianceobligationsforairlinesintheshortterm,iftheICAOGeneralAssemblyextendsthe2019baselineto2035,whichitisconsideringdoing,theseobligationsmaybesignificantlyreduced.Suchanadjustmentwouldconsiderablydampentheaviationsector’sdemandforcreditsoverthenext13yearsandcompromisetheindustry’sclimatecommitmentsfurther.94However,ICAO’srequirementsarealreadyshapingthemarket.AsICAO’sTechnicalAdvisoryBodyapprovedeightstandardsaseligibleforCORSIApurposes,95severalcontracttypesthattrack“CORSIA-eligiblecredits”haveemerged.TheseincludeXpansivCBL’sglobalexchangeplatform,GlobalEmissionOffsets,96andAirCarbonExchangeCORSIAEligibleToken.Thecreditscurrentlybeingtradeddonothavecorrespondingadjustments,whichwillbearequirementforCORSIA-eligiblecreditswithvintagesfrom2021onward,toavoiddoublecounting.Newrulesgoverninginternationalcarbonmarketshaveprovidedcertaintythatmayleadtogrowthinthesemarketsinthecomingyears.AtCOP26inlate2021,countriesagreedonrulesforinternationalcarbontradingunderArticle6oftheParisAgreement(seesection3.5forfurtherdetails).Theserulesprovidegreatercertaintythatwillhelpprogressexistingcollaborationeffortsandmayleadtothedevelopmentofnewapproaches.Forexample,Switzerland,Japan,andSweden,xxxixandmorerecentlyRepublicofKorea,97arealreadyengagingwithpotentialpartnerstodeveloptransactionstructures.OtherrelatedinitiativesincludetheWorldBankTransformativeCarbonAssetFacilityandtheGlobalGreenGrowthInstitute,whichbothreceivefundingthroughvariousgovernmentstoexploreandsetupArticle6transactionsandimplementcapacity-buildingactivitiestofacilitatetheoperationalizationoftheArticle6market.AnimportantdistinctionbetweentheParisAgreementandtheKyotoProtocolistheextentofnationalcommitments.Whileonlydeveloped(orAnnexI)countrieshadclimatetargetsundertheKyotoProtocol,anycountrycanhaveavoluntaryclimatepledgearticulatedinanNDCunderthebottom-upframeworkoftheParisAgreement.Therefore,anycountrycouldconceivablyactasabuyerorsellerinArticle6markets,dependingontheirneedsatagiventime.However,itwilltaketimebeforethepotentialsizeandscaleofinternationalcompliancemarketsisknown.While87%ofPartiestotheParisAgreementhavesignaledtheirinterestinparticipatingintheinternationalcompliancemarket,thexxxixSwedenwillnotuseArticle6creditstomeetitstargetundertheEUNDCbutwillratheruseITMOsformeetingitsnationalcommitmentbeyondtheEUNDC.xlAccordingtotheVoluntaryCarbonMarketsIntegrityInitiative,netzeroemissionsareachievedwhenanthropogenicemissionsofgreenhousegasestotheatmospherearebalancedbyanthropogenicremovalsoveraspecifiedperiod.potentiallevelsandlocationsofsupplyanddemandareuncertain.98Whilesomemajordevelopedcountries,includingtheEUandtheUnitedStates,havesignaledtheywillnotuseArticle6forachievingtheirmitigationtargets,anumberofothercountrieshavealreadystartedtodeveloptheirArticle6strategiesandatleast10countrieshavealreadyindicatedtheirinterestinusinginternationalmitigationoutcomestomeettheirNDCs.99Countriesintendingtoparticipateintheinternationalcarboncreditmarketwill,moreover,needtimetobecomeacquaintedwiththenewlysetArticle6rulesandpreparedomesticcapacity,administrativerules,andinfrastructuretofacilitatetransfersofmitigation(seesection3.5).Moreover,theArticle6rulebookcontainsseveralelementsthatintroduceadifferentcontextforcompliancetradingcomparedtotheKyotoProtocol.Notably,therulebookdoesnotallowforthebankingofITMOsacrossNDCimplementationperiods.Questionsabouthowsuchelementswillplayoutfurtheraddtotheuncertaintyabouthowtheinternationalcompliancemarketmightevolve.3.2VOLUNTARYCORPORATECOMMITMENTSARETHEMAINDRIVEROFMARKETGROWTHThevoluntaryclimatetargetsfromthecorporateworldarestillthemainforcebehindtheincreasingdemandforcarboncredits.Thesetargetsshouldcommittoambitiousdecarbonizationinthecompany'sownvaluechainwhilecompensatingorneutralizingresidualemissions.Theplansforachievingthesetargets,however,varyintermsofscope,coverage,timelines,andintendeduseofcarboncredits.Growingcorporatenetzeroxlcommitmentsaredrivingdemandinthevoluntarycarbonmarketsegment.Largepurchasersin2021camefromarangeofsectors.Energycompanies,mainlylargeoilandgasfirms,ledthewayinpurchasingcredits,increasingtheirdemandninefoldcomparedtothepreviousyear.Foodandbeverageandtourismcompanieshavealsopurchasedcreditsathighprices,andotherconsumergoodsfirmsarealsoactivebuyers.100Thefinancialsectorsignificantlyincreaseditscarboncreditpurchases,asbankssetclimatetargetsfortheiroperationsandotherfinancialinstitutionsactasintermediariesforcorporateclientsandasspeculatorsfromthemarket.101The2021launchoftheGlasgowFinancialAlliance40FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESforNetZero,acoalitiongroupingoffinancialinstitutionsrepresentingaround40%ofglobalbankingassetsthathavevoluntarilycommittedtoastateofnetzeroemissions,hasbolsteredthistrend.Thegrowthinnetzerotargetshasacceleratedrapidlyoverthepastyears.Corporationscanvoluntarilybuycarboncreditstocontributetowardmeetingtheirclimatetargets,tocompensateforemissions,ortoremoveunabatedemissions.TheUNFCCC’sRacetoZeroinitiativenowreports5,235companieshavemadeacommitmentofthistype,andpledgesbyGlobalFortune500companiesgrew17%between2020andtheendof2021.Thesectorlevelalsoshowsprogress-notablyintheInternationalAirTransportAssociationrecentlyannouncingavoluntarynetzerotargetfortheaviationsectorby2050.102Undercurrentplans,19%ofthetargetwillbemetwithcarboncredits.Theincreasingspeedofcorporateclimatetargetadoption,combinedwithadiversityofnetzeroterms,xliclaims,andtarget-settingapproaches,ismakingitdifficulttodistinguishthecurrentroleofcreditsindeepdecarbonization.Duetotheabsenceofagloballyrecognizedstandard,corporateclimateplansvaryconsiderablyintermsofscope,emissionscoverage,timelines,andintendeduseofcarboncreditsforitscompliance.Thisleadstosomecaseswherecompaniesareover-relyingoncarboncreditingtomeettheirclimatetargetsorselling“carbonneutral”productsorserviceswithoutaccountingforasignificantshareofemissions.Oneexampleistheintroductionof"carbonneutral"liquifiednaturalgas103andoilproducts.104Thereareotherexampleswhereclaimscouldconfuseconsumers,suchasthecaseofDeutschePostDHL,whichofferscarbonneutraldeliveriesbutlessthan1%ofthecompany’semissionswereoffsetin2020.105Iftheworldistoreachnetzeroby2050,companiesmustprioritizethedecarbonizationoftheiremissionpathwaysandseektocompensate(throughemissionreductions)orneutralize(throughremovals)onlyresidualemissionswithcarboncredits.AnexampleofthisapproachisMaersk’scommitmenttoreduceitsvaluechainemissionsby90%throughinnovativetechnologiesandfuelsandtoonlyrelyoncarboncreditsfor5-10%ofitsresidualemissionstoachievezero-carbonshippingby2050.106xliCorporatesareusingdifferenttermsfortheirclimatecommitments;othersincludenetzero,zeroemissions,carbonfree,carbonneutrality,andclimatepositive,amongothers.xliiAsthesignificanceofcarbonremovalsisemerging,manymarketparticipantscallalargepartofthem“nature-basedsolutions(NbS).”NbSprovideprojectsthatprotect,transform,orrestorelandthatabsorbsCO2emissionsfromtheatmospherebecomingeligiblefortheissuanceandsaleofcarboncredits.However,andastheInternationalUnionforConservationofNaturedefinesthem,NbSaimtoprotect,sustainablymanage,andrestorenaturalormodifiedecosystemsthataddressothermajorsocietalchallenges,suchasfoodsecurity,watersecurity,humanhealth,orsocialandeconomicdevelopment.Therapidincreaseincorporatevoluntarynetzerocommitmentshasledtostronggrowthforecastsforcarboncreditsdemand.Onerecentanalysisforecastsa15-foldincreaseindemandto1.5-2gigatonsofcarbondioxide(GtCO2)peryearby2030,anda100-foldincreaseto7-13GtCO2by2050.107Otherforecastsshowsimilartrends,reachingdemandof2GtCO2peryearby2030iftheoutcomesofCOP26leadtoeffectivecoordinationofglobalvoluntaryandcompliancemarkets.108Undermostforecastscenarios,growthisexpectedtobedrivenbytheincreasingnumberofcorporatenetzerocommitmentsincombinationwithanincreasedsupplyofnewtechnologiesandnature-basedsolutions.xliiGrowthindemandvolumeisexpectedtobemirroredinvalue,withsomeestimatesforecastingthemarkettoincrease7-20%invalueinoneyear,toreachatotalvalueofUSD1.5-1.7billionin2022.109Philanthropicdemandhashistoricallyrepresentedaverysmallshareofthecarboncreditmarket;however,thisisapotentialgrowthareaifphilanthropistsandcorporationsseektoscaleupnear-termclimatefinance.TheseentitiesmaymakevoluntarycontributionstothegoalsoftheParisAgreementbeyondtheirownoperationsandsupplychainsbyfinancingemissionreductions.Ratherthanacquiringthemandoffsettingthecompany’sGHGemissionfootprint,theypurchasecarboncreditsandretirethem.Forexample,PayPalhaspurchasedcarboncreditswithoutmakingcompensationclaimsandWalmartcommittedtoprotecting50millionacresoflandby2030withoutanoffsettingclaim.110WhilethesecontributionclaimscouldrepresentagrowingsourceofdemandforcarboncreditsandhelpcreateapioneeringrouteforprivateactorstocontributetotheParisgoals,furtherguidanceisneededtoinformwhenandhowcarboncreditscanbeusedaspartofcrediblecontributionclaimsthatgobeyondentities’valuechains.Othercompaniesalsocontinuetoapplyinternalcarbonprices,withsomeinvestingrevenuesinreducingemissionsintheirsupplychainwithoutnecessarilyclaimingtheseascredits(seeBox8).41FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX8InternalcarbonpricingThepastyearhasseenamoderateincreaseinthenumberofcompaniesreportingtheuseofaninternalcarbonprice(ICP),butoveralluptakeremainslimited.MotivationsforimplementinganICPanduptakeacrossgeographiesremainrelativelyunchanged,butnewtrendsinsectoralspreadcanbeseensincelastyear.ThewiderangeofICPpricesremains,asdoesthesmallminorityofcompaniesimplementingICPsatpricesneededtomeetthetemperaturegoalsoftheParisAgreement.TYPEANDUSEOFICPOfallcompaniespubliclydisclosingtoCDPxliiiin2021,16%reportedthattheyhadalreadyimplementedanICP,andafurther19%indicatedthattheyhaveplanstoimplementsuchapriceinthenexttwoyears.OfthecompaniesthatpubliclydisclosedtoCDPinboth2020and2021,therehasbeena16%increaseinthenumberreportingtheuseofaninternalcarbonprice.ThemotivationsforimplementinganICPremainconsistentwithpreviousyears,withstimulatinglow-carboninvestmentanddrivingenergyefficiencythemostfrequentlyciteddrivers.ThetypeofICPusedalsoreflectspreviousyears,withshadowpricing—wherecompaniesapplyanassumedcosttoemissionsassociatedwithagiveninvestmentorproject,inordertobetterunderstandtheirclimateimpacts—stillrepresentingbyfarthemostcommontypeofpriceapplied.ICPACROSSSECTORSANDGEOGRAPHIESTheuptakeofICPsacrossgeographiesshowsnomajorchange,withEuropeandAsiaandPacificcontinuingtohostthehighestnumberofcompaniesreportingtheuseofanICP.Thepastyearhas,however,seenachangeinsectoraltrends,withtheservicesectorovertakingtheenergysectorastheindustrywiththehighestnumberofcompaniesimplementinganICP.PRICINGReportedICPsrangeanywherebetweenUSD0.8andUSD6,000/tCO2e.Themajority,however,remainbelowtheUSD50-100/tCO2epricethatleadingeconomistssayisneededtomeetthetemperaturegoalsoftheParisAgreement.Oftheapproximate950companiesdisclosingtheirICPstoCDP,68%currentlyimplementapriceofUSD50/tCO2eorbelow,andafurther18%implementapricebetweenUSD50andUSD100/tCO2e.Fewerthan100companiesdisclosethattheyarecurrentlyimplementingacarbonpriceofoverUSD100/tCO2e.xliiiSeeCDPwebsiteforfurtherdetails:https://www.cdp.net/enFIGURE13ATypeanduseofinternalcarbonpricing,basedondatafromCDP8%21005010015020025002004006000MotivationforimplementingICPTypeofICPUptakeacrosssectorsUptakeacrossgeo26%17%17%9%6%6%5%5%4%3%1%<1%CompaniesEuropeAsia&PacificNorthAmericaSouthAmericaAfricaCompaniesServicesMaterialsManufacturingInfrastructureFossilfuelsPowergenerationFood,beverage&agricultureRetailTransportationservicesBiotech,healthcare&pharmaApparelHospitalityCompaniesDrivelow-carboninvestmentDriveenergyefficiencyChangeinternalbehaviorIdentifyandseizelow-carbonopportunitiesNavigateGHGregulationsStakeholderexpectationsStresstestinvestmentsSupplierengagementOtherCompaniesShadowpriceImplicitpriceInternalfeeOffsetsOtherInternaltrading3%68%62%59%48%43%37%28%12%10%8%2%13%17%21%67%60040020000501001502002500200400600050100150200250300350MotivationforimplementingICPTypeofICPUptakeacrosssectorsUptakeacrossgeographies26%17%17%CompaniesEuropeAsia&PacificNorthAmericaCompaniesServicesMaterialsManufacturingCompaniesDrivelow-carboninvestmentDriveenergyefficiencyChangeinternalbehaviorIdentifyandseizelow-carbonopportunitiesNavigateGHGregulationsStakeholderexpectationsStresstestinvestmentsSupplierengagementOtherCompaniesShadowpriceImplicitpriceInternalfeeOffsetsOtherInternaltrading39%35%18%68%62%59%48%43%37%28%12%10%42FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESFIGURE13BUptakeofinternalcarbonpricing,basedondatafromCDP2%050100150200250050100150200250300350UptakeacrosssectorsUptakeacrossgeographies26%17%17%9%6%6%5%5%4%3%1%<1%CompaniesEuropeAsia&PacificNorthAmericaSouthAmericaAfricaCompaniesServicesMaterialsManufacturingInfrastructureFossilfuelsPowergenerationFood,beverage&agricultureRetailTransportationservicesBiotech,healthcare&pharmaApparelHospitalityStakeholderexpectationsStresstestinvestmentsSupplierengagementOtherInternaltrading39%35%18%5%3%37%28%12%10%8%2%13%17%21%67%60040020000250050100150200250300350TypeofICPUptakeacrossgeographies26%CompaniesEuropeAsia&PacificNorthAmericaSouthAmericaAfricaCompaniesShadowpriceImplicitpriceInternalfeeOffsetsOtherInternaltrading39%35%18%5%3%3.3CARBONCREDITMARKETGROWTHISUNEVEN,REFLECTINGDIVERSEBUYERPREFERENCESDemandpreferencesandbuyers’needscontinuetoincentivizeaspectrumofalternativesforcarboncreditswithdifferentiatedpricesacrossprojecttypes,geographies,andco-benefits.Ahighlightthisyearistheincreasedinterestinforestandlanduse-basedcredits.Carboncreditpriceshaverisensharply,thoughpricescontinuetovaryacrossdifferenttypesofcredits.Themarketforcreditsfromindependentcreditingmechanismsisheterogeneous,withbuyersplacingarangeofvaluesoncharacteristicssuchasthesector(e.g.,typeofactivity),geography,age/vintage,andco-benefitsofcredits.Whilerecentyearshaveseensomemovestowardofferingstandardizedcontracts(seesection3.4),pricesvarywidely,withtradingplatformsofferingcontractsrepresentingcreditsfromdifferentsectors.Forinstance,assessmentsbyS&PGlobalPlattssuggestthatremoval-basedcreditswerepricedwellabovecreditsfromrenewableenergy-basedprojects(seeFigure14).FIGURE14PricesofstandardizedcarboncreditcontractsxlivAveragecarboncreditprice(USD)RemovalsNatureBasedAvoidanceCORSIAEligibleRenewableEnergy252015105020212022Q1Q2Q3Q4Q1xlivSource:BasedondatafromS&PGlobalPlatts,2022byS&PGlobalInc.43FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESCORSIAeligiblereflectscarboncreditseligiblefortheInternationalCivilAviationOrganization’sCORSIAprogram(PlattsCECassessment).RenewableenergyreflectsrenewableenergycarboncreditsthatavoidGHGemissions(PlattsCNRassessment).Naturebasedreflectsnature-basedcarboncreditsfromprojectsthateitheravoidorremoveGHGemissions(PlattsCNCassessment).AvoidanceisabasketassessmentthatreflectscarboncreditsfromprojectsthatavoidGHGemissions.ThisincludesthePlattsHouseholdDevices,PlattsIndustrialPollutants,andPlattsNature-BasedAvoidanceassessments(PlattsCACassessment).RemovalsisabasketassessmentthatreflectscarboncreditsfromprojectsthatremoveGHGemissionsfromtheatmosphere.ThisincludesthePlattsNaturalCarbonCaptureandPlattsTechnologicalCarbonCaptureassessments(PlattsCRCassessment).MoredetailaboutthePlatts’differentassessmentscanbefoundinPlatts’SpecificationGuide:https://www.spglobal.com/commodityinsights/PlattsContent/_assets/_files/en/our-methodology/methodology-specifications/method_carbon_credits.pdf.Thedemandforremoval-basedcreditsiscausingpricesfortheseunitstorise.Highdemanddrivenbythespecialroleremovalsaresettoplayinmeetingnetzerotargetsxlvandtechnologicalfeasibilitychallengesthatlimitcurrentsupplylikelyexplainthehighpriceassignedtoremoval-basedcredits.AccordingtoS&PGlobalPlatts,despitea9%fallinpricebetweenFebruaryandMarch2022,xlviremoval-basedcreditpricesincreasedby48%inthepastsixmonths,risingtoUSD19/creditinMarch2022,whereascreditsthatreduceoravoidemissionsweresoldforonly40%ofthisprice(seeFigure14).xlvNetzeroistakentobeaspertheIntergovernmentalPanelonClimateChangedefinition:“humanactivitiestoresultinnoneteffectontheclimatesystemwouldrequirebalancingresidualemissionswithemissionremovals.”xlviAccordingtomarketobservers,thispricedropmightbeattributedtotheuncertaintyfacedbythebeginningofthewarinUkraine.Morerecentdatasuggestthat,asofApril2022,pricesofnature-basedcarboncreditshavestartedtorebound.SeeR.Manuell,M.Tilly,andS.Reklev,“VCMReport:Nature-basedVERsContinueReboundafterBearish‘Blip’inMarch,”CarbonPulse,April11,2022.xlviiForestryandland-useprojecttypesincludeafforestation/reforestation,avoideddeforestation,improvedforestmanagement,avoidedconversion,reducedemissionsinagriculture,carbonsequestrationinagriculture,andwetlandrestoration.ClimateFocus,“TheVoluntaryCarbonMarketDashboard,”2022,However,increasinginterestinremovalshasnotyettranslatedintohightransactionvolumes.AccordingtoEcosystemMarketplace,in2021thetradedvolumeofcreditsfromreduction-basedprojectsinthevoluntarycarbonmarketwas21timeshigherthanthetradedvolumeofcreditsfromremoval-basedprojects.Twofactorslikelyexplainthemarketdominanceofreduction-basedcarboncredits.First,informationonremoval-basedcredittransactionsmaynotbeavailableorrecordedinthemarket,ascompaniesarestartingtodeveloptheseprojectsthemselves(seesection3.4formoredetail).Second,itispossiblethatsupplyofremoval-basedcreditsiscurrentlylimitedduetothelongleadtimesfortheseprojectstoproducecredits.Companiesarealsofacingdifficultiesfindingcarboncreditsfrommedium-andlong-termremovalprojects,whichguaranteethatemissionswillbestoredformorethan100years.111Forestandlandusecreditsareclosingthegaponrenewableenergycreditsintermsofcreditissuance.Carboncreditissuancesfromforestryandland-useprojectsincreased159%overthepastyear,accountingformorethanathirdoftotalcreditissuancesin2021.xlviiAround70%ofthesecreditsweregeneratedinAsia,primarilyinCambodia,Indonesia,andChina,withmostoftheremaindergeneratedinLatinAmerica,ledbyprojectsinBrazilandPeru.Althoughmostofthesecreditscomefromprojectstoavoidemissionsfromdeforestationandlanduseconversion,projectstoremoveatmosphericemissions(suchasafforestation,carbonsequestrationinagriculture,andimprovedforestmanagement)contributedtoafifthofthisgrowth.Whileforestandlandusecreditshavelongbeenatthecenterofpolarizeddebatesregardingadditionality,permanence,andbaselineaccuracy,112theseprojectsaregainingpopularityasmorebuyersadoptnetzerotargetsthatdependonremovalstoneutralizetheemissionsthatcannotbereduced.However,moratoriumsonthedevelopmentofcarbonprojects,suchasthemoratoriumonReducingEmissionsfromDeforestationandForestDegradation(REDD+)projectsinPapuaNewGuinea113andthemoratoriuminFujianProvinceinChinaissuedonNbSs,114haveraisedconcernsthatotherregionswillfollowsuit,shrinkingsupplyandcausingpricesurges.Renewableenergycreditsremain,byasmallmargin,themostabundantcreditsinthemarket.Theyalsooffersomeofthecheapestprices.115Thetwomajorindependentcreditingmechanisms(VerifiedCarbonStandardandGoldStandard)havesince202044FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESonlyacceptedregistrationsofnewlarge-scalerenewableenergyprojectslocatedinleastdevelopedcountriesduetotheseprojectselsewherenotrequiringcarbonfinancetobeeconomicallyfeasible.Still,severalprojectsregisteredbeforethisdatehavesinceincreasedtheirissuancessubstantially.xlviiiProjectsinAsia,LatinAmerica,andtheCaribbeanhavesuppliedthemajorityofcarboncredits.AccordingtoEcosystemMarketplace,tradedvolumesofcreditsfromprojectslocatedinAsiamorethandoubledinthepastyear,representing56%ofthetotalcreditstransactedinthemarketin2021duetovolumesofrenewableenergyandforestryandlandusecredits,predominantlyfromCambodiaandIndonesia.AlthoughcreditsfromAsiahaveofferedthelowestprices,theseincreasedfromUSD1.60/tCO2ein2020toUSD2.97/tCO2ein2021.116CreditstransactedfromLatinAmericaandtheCaribbeanaccountedfor22%oftotaltrade,dominatedbyforestryandlandusecredits.CreditsfromAfricarepresented15%ofthetotal,withtransactedvolumesofcreditsfromtheregionreachingtheirhighestlevelsyet,withpricesalsoincreasingfromUSD4.24/tCO2ein2020toUSD6.09/tCO2ein2021.117Marketheterogeneityisincreasing,fueledbythediversepreferencesandneedsofbuyers.Inthecontextofsignificantgrowthinvoluntarycommitmentsandincreasingdiversityofbuyerswithdifferentprioritiesandreasonsforpurchasingcredits,voluntarybuyers’purchasingdecisionsarelikelytobeincreasinglyheterogeneous,withdifferentbuyersprioritizingprice,quality,integrity,andothercharacteristicsdifferently.Buyers’optionsininternationalcompliancemarketsare,forthemostpart,morelimitedbecauseoftherequirementtosourceonlycarboncreditswithacorrespondingadjustment.Figure15illustratesthemainpurchasers’decisionsshapingthemarket.ThemarketisevolvingtohighlightotherbenefitsofcreditsbeyondGHGemissionsmitigationandtodeveloptoolstoverifythem.Forexample,someco-benefitsthatpurchasersvaluerelatetowhethertheunderlyingprojectcontributestoachievingoneormoreoftheSustainableDevelopmentGoals(SDGs).CreditswithSDGbenefitsareattractivetobuyersastheyofferanopportunitytomakeadditionalcontributionstosustainabledevelopmentandforthosecontributionstoberecognizedinthesocialandeconomicagenda.Fromprojectdevelopers’perspective,suchcreditsincreasethepotentialtoobtainpricepremiumsinthemarket.ThismarketdynamicxlviiiHowever,projectsvalidatedandsubmittedforprojectregistrationpriortoDecember29,2019arestilleligibleundertheVCSfortheirfullcreditingperiods.xlixEachSDTrepresentsacarbonemissionunitaccompaniedbyadditionalcertificationsorregistryapprovedlabelsforsustainabledevelopmentbenefitsthathavebeenreviewedbythirdparties:AirCarbon,“ExchangeTradableAssets.”isreflectedinthepriceincreasesforcreditsfromprojecttypesconsideredtoofferbroaderco-benefits,includingforestryandlanduseandhouseholdenergyefficiencyprojecttypes,suchasimprovedcookstoves.118Verifyingtheseco-benefitclaimsisimportant,andthereareincreasingeffortstodeveloptoolstovalidatetheminanobjectivemanner.SomeeffortsseeninthemarketincludeAirCarbon’sSustainableDevelopmentToken,xlixVerra’sSustainableDevelopmentVerifiedImpactStandardprogram,119andGoldStandard’sSDGImpactTool.120FIGURE15MultilayeredpurchaserdecisionsshapediversemarketsandpricesComplianceorvoluntary?Contributionorcompensation?Removalsorreductions?Co-beneﬁtsorleastcost?VoluntarymarketpurchaserstendtohavemorediversepreferencesthancompliancepurchasersConsumer-facingcompaniesaremorelikelytoseekcreditsfrom“marketable”projectswithmultipleco-benefitsPurchasersseekingcreditstocomplywithnetzerostrategiesaremorelikelytoprioritizeremovingatmosphericcarbonoveravoidedemissionsPurchasersseekingtooffsettheiremissionsmaybemorelikelytoseekcreditswithcorrespondingadjustments45FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXES3.4NEWFINANCIALSERVICESANDTECHNOLOGIESAREENTERINGCARBONCREDITMARKETSRapidlygrowingcreditdemandisencouragingnewplayerstoenterthemarketandforcingmarketplayerstofindcreativewaystoadapttonewdynamics.Atthesametime,themarket’sfragmentedanddecentralizednaturecontinuestoraisechallengesinensuringtransparencyandliquidity.Theroleoffinancialactorsincarboncreditmarketshasgrownconsiderablyinthepastyear.Financialactorsareincreasinglyinvolvedattheimplementationphaseofcarbonprojects,providingcapitalandrisk-hedgingmechanismstoprojectdeveloperswhopreviouslyhadtorelyprimarilyonequityandgrantsfortheirupfrontinvestments.121Financialplayersarealsoincreasinglyactingasintermediariesforvoluntarycarboncreditstransactions.Inrecentyears,theinstitutionallandscapeofcarboncreditmarketshaschangedsignificantlywiththecreationofnewcarbonexchanges,themergerofpreexistingones,122andtheentryintothemarketofotherfinancialentities—suchascommodityexchangesorbanks—thatwerenotoriginallylinkedtocarbonmarkets.123Thesenewplayersprovidearangeofservicesincludingtradingplatforms,derivatives,andcarbonqualitystandards.Thisfundamentallychangesthenatureoftransactionsbyintroducingnewmechanismsforpricedetermination.Thepricesofstandardizedcontractsareincreasinglyusedasbenchmarks,companieshavebeguntodeveloppriceassessmentsfordifferenttypesofcarboncredits,landportfolioauctionsforcarboncreditshaveemerged.liNewplayersandfinancialservicesaremovingthecarboncreditmarkettowardgreaterstandardization,raisingbothopportunitiesandchallenges.Transactiondatafromstandardizedcontractsliiarescarceandscattered,makingitdifficulttoassesstheirrealimportanceinthemarket.Whileover-the-countertransactionsremainthenormincarboncreditmarkets,availableindicatorssuggestthat,inrecentyears,standardizedtransactionshavegrownsignificantly.Forexample,in2021thetotalvolumeofcarboncreditstradedononeofthemajorcarbonexchanges,theXpansivCBLexchange,exceeded121.5million,anincreaseof288%from2020.124Thesupplyofstandardizedcontractshasalsodiversified.Forexample,lSeeforinstanceS&PGlobal,“PlattsCarbonCreditAssessments”;andNasdaq’srecentlylaunchedcarbonremovalindexes:Nasdaq,“NasdaqLaunchesWorld’sFirstCarbonRemovalIndexes,”March24,2022.liForexample,inNovember2021,theglobalcarboncreditexchangeandmarketplaceClimateImpactX(CIX)conductedafirst-of-its-kindportfolioauctionofvoluntarynature-basedcarboncredits:DBS,“CIXCompletesFirst-of-its-KindPortfolioAuctionofVoluntaryNature-basedCarbonCreditswithLeadingGlobalCompanies,”November4,2021.liiStandardizedcontractsrefertotransactionsinvolvingpackagesofcarboncreditswithcertifiedcommoncharacteristics(projecttype,vintages,and/orissuingstandards)andsoldasstandardproductsbycarbonexchanges.Standardizedcontractscanbedistinguishedfrom(nonstandardized)over-the-countertransactions.exchangesareincreasinglyofferingstandardizedcontractsthatensurecompliancewithqualitycriteriafornature-based,energy,orhouseholddevicecarbonprojects.Greaterstandardizationcanbringmoretransparencyandliquiditybyfacilitatingthegenerationofaccuratemarketdata.However,italsoincreasestheriskofvariousprojectsbeinglumpedtogetherunderalargertypeofcontract,thusblurringthedifferencesbetweenthem.Finally,greaterstandardizationwouldalsoopenthedoortospeculativepracticesthatcouldultimatelybeamajordriverofcarboncreditmarketgrowthbutalsovolatility.125Tradingdynamicsarechanging,ledbycompanieswithlong-termcommitmentsseekingwaystosecurefutureoffsettingneeds.In2017,volumesofcreditretirementsweresimilartoreportedvolumesfortransactions,buttwoyearslaterreportedtransactionvolumeswerenearly40%higherthanretirementvolumes.In2021,reportedtransactionvolumeswere129%higherthanretirementvolumes.126Inarisingpricecontext,thisgrowingdifferencebetweentransactionandretirementsuggeststhatbuyersareincreasinglymovingtowardlong-termbuyingtosecurefutureneedsorresellatahigherpricelater.Onewouldexpectthepriceandthevolumeofforwardcontractstradedtoreflectthistransitiontowardlong-termbuying.However,thisisnotthecase:AvailablemarketdatafromEcosystemMarketplacesuggeststhatspotcontractsstilldominatethemarket,withnearlysixtimesmorevolumetradedthanforwardcontracts,andforwardcontractsremainslightlycheaperthanspotcontracts(USD3.57andUSD4.08,respectively,asofthethirdquarterof2021).127Onereasonforthismightbethatcurrentlyavailablemarketdatadonotcapturespecifictypesofdealsthatinvolvefuturepurchases.Insuchdeals,bigcorporationspartnerwithprojectdevelopersandprovidecapacityandupfrontinvestmentincarbonprojectstosecurefuturecarboncreditsandeventuallysellextracreditstomakeaprofit.Forinstance,inlate2021,multiplejointventuresbetweencapitalprovidersanddevelopersannouncedthedevelopmentofnewnature-basedprojects,withsomerepresentinglargefinancialvaluesandissuancevolumes.12846FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX9Whatistokenization?Tokenizationistheprocessbywhichanissuercreatesadigitalrepresentationofsomethingofvalueonadistributedledgerorblockchain,whichrepresentseitherdigitalorphysicalassets.Tokenscanonlybesoldortransferredbytheirowners,ensuringtheyrepresentuniqueandunforgeablerepresentations.Tokensmayalsoconfergovernancerightstousers,dictatinghowtheyshouldbeusedandwhattypeofinformationshouldbeencodedwiththem.Manyblockchainplatformshavedevelopedstandardstohelpensureinteroperabilityacrossplatformsandtools,aswellastopromotesecuritypropertiesofthetoken.Carbontokenscanincorporateprovenancedataandinformationabouthowthetokenmaybeusedortraded,whichhasbeenprovidedbytheissuer.Iftokensarecreatedthroughastandardizedprocess,theirincreasedaccessibilitycanimprovetractionandsupportoverallmarketliquidity.Informationaboutthemovementofcarbontokensastheyaretradedcanbemadevisibleandtracked,includingwhenthetokenisretiredandcannolongerbetransacted.Inthiscontext,whenatokenismarketedasprovidingtheimpactacarboncreditrepresents(i.e.,aGHGreductionorremoval)itmustbeindependentlyverifiedagainstasetofrulesandrequirements.ThisprocessaimstoguaranteethatanytokenbilledasreducingoroffsettingGHGemissionshasallfundamentalattributesofcarboncredits,suchasnamelyreal,additional,permanent,robustlyquantified,independentlyverified,oruniquelyclaimed.Theentranceofnewfinancialservicesandtechnologiesintocarboncreditmarketshasdrawncriticism,resultingfromtheperceivedpotentialtoobscureintegrityandqualityindecentralizedcarbonmarkets.Anumberofefforts,includingtheWorldBank’sClimateWarehouseinitiative,areaimingtodemonstratetheviabilityofdecentralizedapproachestoconnectingcarbonmarkets,whileThedevelopmentanddiffusionofnewtechnologies,inparticularblockchain-relatedtechnologies,isshapingtradingpracticesincarboncreditmarkets.Whilethemobilizationofblockchainhasgainedtractioninrecentyears,thepastyearhasseentheemergenceofanewphenomenonwitheffortstomakecarboncreditmarketsinteroperablewithdecentralizedfinance.Decentralizedfinanceallowspeer-to-peerfinancialtransactionswithoutthirdparties,enabledbycryptocurrency,smartcontracts,andotherdigitaltechnologyinnovations.Whiletheuseofthesetechnologiesincarboncreditmarkettransactionswilllikelycontinuetogrow,itiscriticaltounderstandandaddressthepotentialrisksbeforetheyarefullyembraced.Thedeploymentofthesenewtechnologieshasthepotentialtohelpscaleupthecarboncreditmarketandbreakdownsilosbetweenregistrieswhileprovidingtraceability,liquidity,security,andtradingefficiency.However,theymayalsoprovideopportunitiesfordestabilizingspeculativepracticesandaddanadditionallayerofcomplexityinamarketthatisalreadyintenselyfragmented.129Incompliancemarkets,thesetechnologiesarealsobeingexploredtoensurethatemissionreductionsorremovalsareaccountedforproperly,avoiding“greenwashing”activitiesoutsidethismarket.Nevertheless,thesenewpracticeshavegainedtractionandattractedtheattentionofmajorcarboncreditmarketsplayers.Whiletheuseofblockchain-basedstructuresforcompliancemarketshasbeenincreasinglyexploredforsomeyearsnow,130theInternationalEmissionsTradingAssociationhasrecentlyformulatedasetofinitialrecommendationsandlaunchedaTaskForceonDigitalClimateAssetstoexploreandworkonguidelinesforblockchain-basedcarbonmarkets.131Theautomatedprocessesembeddedinblockchainnetworksencouragerapid,butnotalwayssmooth,technologicalandfinancialinnovation.DigitalinfrastructureprojectsliketheToucanProtocolhaveprovidedaone-way“carbonbridge”fortokenizingcarboncredits,bybuyingandretiringmorethan18millioncreditsfromtheVerraregistrywhileissuingnew(notionallyequivalent)on-chainassetscalled“BaseCarbonTonnes.”Inturn,tokenizationthroughtheToucanProtocolhasenabledeffortssuchasKlimaDAO,adecentralizedautonomousorganizationaimingtoacceleratepriceappreciationofcarbonassets.WithinweeksofitslaunchinNovember2021,KlimaDAOacquiredover9milliontokenizedcarbonassets,132buttriggeredcontroversywithinitsdeveloperandusercommunityafterbridgingliiiverifiedcarbonunitsfromaprojecttypethatwasdiscreditedintheearly2010s,ahydrofluorocarbondestructionprojectinYingpeng,China.133liiiBridgingreferstotheprocessofretiringacarboncreditontheoriginatingparentregistryandcreatinganun-duplicabledigitalrepresentationofthatcreditthroughablockchain-basedprocess.47FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESenhancingtransparencyandtrust.134Inaddition,blockchaintechnologycompaniesareattemptingtoimprovetheperceivedqualityofcreditsbroughttothechainbyrestrictingaccesstooldvintages135andemittingtokenizedunitsfollowingspecificqualitycriteria.136Somepublicregistrieshavesuggestedthatsimplyissuingatokendoesnotconferlegalrightstotheunderlyingcreditorimpactthatatokenisstatedtorepresent.137Forinstance,theGoldStandardRegistrystressedthattheregistryofthestandardthatissuedthecreditisthe“sourceoftruth”forthestatusofthatcredit.138Inaddition,ithighlightedthatanysecondarymarket,blockchain-basedorotherwise,needstocomplywiththeissuingstandard’stermsandconditionstoensurelegalownershipofthecreditandcommunicateanychangeinstatusofthecreditbacktotheregistry139—astatementechoedinIETA’srecommendationsontheuseofdigitalclimateassets.1403.5THEGOVERNANCEOFCARBONMARKETSCONTINUESTOEVOLVEGovernanceframeworksareemergingthatseektopromoteintegrityandclarityinanincreasinglycomplexanddiversemarket.ThesecomealongsidetheadoptionofrulesunderArticle6oftheParisAgreement.SixyearsafterParis,atCOP26,attendingnationsagreedonthemodalities,procedures,andguidelinesforimplementationofcarbonmarketsunderArticle6oftheParisAgreement.Theserulesrepresentamajormilestone,creatingapathforinternationalcarbonmarketstocontributetomeetingNDCgoalsandsupportscalingupclimateambitionthroughvoluntarycooperation.TheshareofpartiesindicatingplannedorpossibleuseofvoluntarycooperationmechanismsunderArticle6hasnearlydoubled,from44%to87%intheneworupdatedNDCsubmissions.141AccordingtoananalysiscarriedoutbyIETA,implementingNDCscooperativelyratherthanindependentlythroughArticle6couldsavegovernmentsmorethanUSD300billionperyearby2030.142Somecountrieshavealreadyinitiatedprocurementofemissionreductioncreditsinthiscontext.TheArticle6rulesagreeduponinGlasgowexplicitlyembracethediversityofcarbonmarkets.Underthenewrules,governmentswillbeabletodecidethetypeofprojectsthatwillbedevelopedintheircountriesandhavecontroloverwhethertoauthorizetheemissionsreductionsfromthoseprojects(seeBox10).Thisdecisionislikelytoleadtofurtherdivergenceinapproaches,credittypes,andprices.BOX10ThefinalizedArticle6RulebookprovidesroomforflexibilityinvoluntarytransactionsThefinalizedArticle6rulesprovideflexibilitytoprojecthostcountriesinhowvoluntarycarbonmarkettransactionscantakeplace.ThesemayrangefromnotrequiringcorrespondingadjustmentsforusingcarboncreditsforvoluntarycommitmentstoablanketrequirementforArticle6authorizationandtherebytheapplicationofacorrespondingadjustmentforanycarboncreditthatistransferredoutofthejurisdiction.Anumberofcountrieshavealreadycommittedtotheprincipleofcorrespondinglyadjustingcarboncreditscertifiedunderindependentstandardsandusedbycorporateactorsforvoluntaryclimatecommitments,ledbyagroupofcountriesthatsignedontotheSanJoséPrinciples.livSomecountrieshavealsoalreadycommittedtoapplyingcorrespondingadjustmentsforindividualprojects,lvalthoughsuchcommitmentsdonotrepresentastreamlinedcountrystrategyforcorrespondingadjustmentsyet.Othercountrieshavebeenreluctanttocommittocorrespondingadjustmentsforcreditsusedinthevoluntarycarbonmarket.livTheSanJoséPrinciplesCoalitionrecommittedafterCOP26toPrinciplesforHigh-IntegrityCarbonMarkets,includingtocorrespondingadjustmentsforallcomplianceuses,aswellasapplyingcorrespondingadjustmenttosupportvoluntarycorporateclimatecommitments.TheendorsersincludeColombia,CostaRica,Fiji,Finland,MarshallIslands,Peru,andSwitzerland.lvIncludingNepalandRwanda.48FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESHowpurchasersandhostgovernmentsprioritizecorrespondingadjustmentswillsignificantlyshapemarkettransactionsofcarboncredits.Somegovernmentsmaybepredisposedtoabsorbasmanyofthelower-costemissionreductionopportunitiesfortheirownNDCsbeforeallowingcorrespondingadjustmentforcarboncreditsfromindependentstandardsandexportingtheabatementoutcome.Ontheotherhand,focusingonhostingprojectswithoutcorrespondingadjustmentswouldallowgovernmentstoleveragevoluntarycommitmentsandattractinvestmentstohelpachievetheirNDCs,thoughthesecreditsmaybelessattractivetobuyers.Giventhecapacityandinformationneedsforhostcountries,projectdevelopers,andcarboncreditbuyerstoadapttonewArticle6infrastructure,itwilltaketimeforArticle6tobecomefullyoperational.Forprojecthostcountries,developinganinternationalcarboncreditmarketstrategyrequiresextensiveknowledge,capacities,andinfrastructuretounderstandhowparticipationintheinternationalcarbonmarketcontributestoachievingtheirmitigationtargets.Forprojectdevelopers,theemergingcontextoffragmentedandinteractingmarketsmeansthattheyneedtodealwithdifferentstrategiesandrequirementsindifferenthostcountries.Securingacommitmenttocorrespondingadjustmentsfromhostcountriesfortheirprojectsmayrequireanextrastep,whichmayimplylongertimelinesforprojectdevelopmentandimplementation.Anumberofprojectdevelopershavealreadysecuredsuchacommitmenttocorrespondingadjustmentsfromhostcountrygovernmentsinwhichtheirprojectsaresituated.lviTheflexibilityprovidedbytheArticle6rulesgivesthevoluntarycarbonmarketmorescopetoscalequickly,butcarriesrisks.Unlessconsumersandinvestorscannavigateterminologyanddifferentiateprojectclaims,themarket’sflexibilitycouldfacilitategreenwashing.143Thedifferentbifurcationsmaycreateadditionaluncertaintyforbuyersonidentifyingwhichcreditsoroffsetstheycancrediblyclaimamongtheirclimatecommitments.Inconsistentclaimsontheroleandlegitimacyofcreditsmayconfuseanddiscouragepotentialvoluntarypurchasers,especiallyretailcustomers,whichcouldcloudtransparencyanddampendemand.144Manyobservers,particularlyinstitutionalinvestors,stillpreferamoreuniformcarboncreditmarket,tominimizeinefficientfragmentationandconsolidateliquidityaroundasmallersetofcommonlyunderstoodcredittypes.145Gettingthebalancerightwillbeamajordeterminantofthelong-termscaleandsuccessofcarbonmarkets.lviTheseincludeAtmosfair,aGermannongovernmentalorganization,whichsigneddealswithNepalforcorrespondingadjustmentsforcreditsfromitsprojects.Atmosfair,“GovernmentofNepalandGermanNGOAtmosfairAgreeonLandmarkCO2-offsetCooperation,”October29,2021.lviiHFLDrepresentsjurisdictionswithextensiveforestsandhistoricallylowlevelsofdeforestation.Inthiscase,concernsarefocusedonthechallengesofprovingadditionalityandsettingcrediblebaselineswherecountrieshaveonlyexperiencedlimitedamountsofdeforestationinthepast.lviiiTheIntegrityCouncilwasformedinOctober2021basedontheinitialworkoftheTaskforceonScalingVoluntaryCarbonMarketsin2020-2021.ItreleaseditsPhaseIIreportin2021.lixTheIC-VCMisthenewgovernancebodyconveninggovernment,financialmarkets,NGOs,science,academia,civilsociety,business,andlocalcommunitieswiththeaimofsettingandenforcingglobalstandardsforthevoluntarycarbonmarket.PhaseIIoftheTaskforceonScalingVoluntaryCarbonMarketsinformedtheformationoftheIntegrityCouncil.TaskforceonScalingVoluntaryCarbonMarkets,PhaseIIReport,July8,2021.Despitetheconsensusthatcarboncreditswillplayaroleincorporatedecarbonization,theirrolemustalsobalancetheneedfordirectactionbybusinessestoreduceemissions.Arecentanalysisofnetzerotargetsfoundthatheadlinetargetsareoftenambiguous,emissionreductioncommitmentsarelimited,andcorporateplanstooffsettheiremissionsarequitecontroversial.146Theresearchpointedto,amongothers,majoroilcompaniesclaimingfossil-basedactivitiesascarbonneutralbyrelyingoncarboncredits.Someenvironmentalgroupsarepushingforgovernmentstosetstrongerregulationsonthedemandsidetoencouragecorporationstoinvestininnovationandacceleratedecarbonization.Civilsocietyandconsumersareincreasinglyexaminingthecarbonneutralityclaimsofcorporatesandinsomecasesfilinglawsuitscitingmisleadingclaims,suchasthecaseofArla’scarbonneutralityclaimreportedbytheSwedishConsumerAgency.147Thereremainsignificantdebatesabouthowtoensurethequalityandintegrityofcarboncredits.Thefundamentalchallengeisthattheclimatebenefitsfromcarboncreditscanonlybeestimatedagainstareferencescenario,neverobserved.148Ensuringintegrityrequiresastrongadditionalitycase—whichisextremelydifficulttooperationalizeacrossprojecttypes—androbustandconservativebaselinesandquantificationofemissionreductionsorremovals.Forexample,concernslviihavebeenraisedregardingICAO’srecentacceptanceofHighForestLowDeforestation(HFLD)creditsundertheArchitectureforREDD+TransactionsstandardaseligibleforCORSIA.149Arangeofinitiativesareemergingtoaddressongoingintegrityconcernsbyguidingthesupplyanddemandtowardhigh-integritycreditsandnetzerostrategies.ThisincludestheIntegrityCouncilfortheVoluntaryCarbonMarket,aprivate-sector-ledinitiativeworkingonscalingupthetransactionsforvoluntarycommitmentsbypromotinghigh-qualitycreditsandstandardizationofcontractstoimproveliquidity.lviiiTheIntegrityCouncilfortheVoluntaryCarbonMarket’sPhaseIIreportcontainsguidanceforestablishingaglobalgoverningbodyforvoluntarycarbontransactions,standardizingthelegalframeworkforthemarket,andimplementingcorecarbonprinciplesforcreditintegrity.lix49FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESBOX11Article6ActivitiesOperationalizationoftheArticle6marketishighlydependentonthereadinessofparticipants.TheadoptionoftheArticle6RulebookatCOP26hasprovidedgreatercertaintyontheapplicablerules,andprovidedtheclarityonthecapacity,infrastructure,andsystemrequirementsthatareneededtosupportstrategicengagementandtransactionsunderArticle6.TheimportanceofbuildingArticle6readinessisreflectedintheCOP26decisionandthesubsequentUNFCCCSecretariatworkprogramtodesignandimplementacapacity-buildingprogramfordevelopingcountriesthatwishtoparticipateinArticle6.WhilenoITMOshavebeentransactedtodate,countrieslookingtobecomeArticle6hostshavestartedtodeveloptheirengagementstrategiesandneededprocesses,includingforITMOauthorizations,withpotentialbuyercountriesparticipatinginArticle6transactions.Today,Article6readinessactivitiesfocusonstrengtheningparticipants’capacities,developingpolicyframeworks,andbuildingthenecessaryinfrastructuresforArticle6transactions.Examplesinclude•theworkoftheGlobalGreenGrowthInstitutetosupportcountriesindesigningpolicyandgovernanceframeworksforengaginginArticle6transactions,lxcompletingtransactionsfromscalableprojectsandprograms,lxianddevelopingapproachestofosterprivatesectorengagement;lxii•theWorldBank’sPartnershipforMarketImplementationsupporttodevelopinfrastructures,strategies,andpolicyframeworksforcountries’participationininternationalcarbonmarkets;•theUNDP’scountrysupporttodevelopArticle6regulatoryframeworksandtheestablishmentofITMOprocessflows;•Japan’sfundingcapacitybuildingforparticipatingintheJointCreditingMechanism(JCM);and•theWestAfricanandEasternAfricaAlliancesonCarbonMarketsbothcontinuetosupportcountriesintheirregionstocreateanenablingenvironmentforArticle6collaboration.lxTheDesigningArticle6PolicyApproachesprogramissupportedbyandimplementedtogetherwiththeNorwegianMinistryofClimateandEnvironmentandlookstodevelopprogramsinIndonesia,Morocco,Vietnam,andSenegal.lxiTheMobilizingArticle6TradingStructuresprogramissupportedbyandimplementedtogetherwiththeSwedishEnergyAgency.ActivitiesarecurrentlyunderwayinCambodiaandNepal.lxiiTheSupportingPreparednessforArticle6CooperationissupportedbyandimplementedincollaborationwiththeInternationalClimateInitiative,andexpectedtostartin2022.TheprogramanticipatesimplementingmorethaneightArticle6pilotprogramsacrossColombia,Pakistan,Thailand,andZambia.Article6activitiesaresteadilymovingclosertotransactionalstagesandpotentiallyofferanopportunitytotestdifferentcontractualstructures.AndwhilenoblueprintsortemplatesforArticle6transactionshaveyetfullyemerged,bilateralcollaborationframeworksthathavebeendevelopedtodatetypicallyincludesimilarelementssuchasacommitmenttoapplycorrespondingadjustmentsandreportingmodalities.Severalagreements,indifferentshapesandforms,havebeenformalizedbycountriesthroughout2021.150,151Inparallel,earlymovershavestartedtodesignmitigationoutcomepurchaseagreements,whichsetoutcommercialarrangementsaroundprices,paymentstructures,anddeliverymodalitiesforArticle6transactions.ItisprovingchallengingtotranslateArticle6transactionstructuresintocontracts,forexamplelinkingorconditioningpaymentsformitigationoutcomestotheapplicationofcorrespondingadjustmentsandmanagingandallocatingtransactionrisks.Contractualoptionscontinuetobetheoreticalandpoorlyunderstood.StakeholdersalsostrugglewithalackofinformationonopportunitycostsformeetingNDCsinthefuture.RecognizingthatArticle6rulesatCOP26permitcountriestoauthorizeITMOsforuseinvoluntarycarbonmarkets,independentcreditingstandardssuchastheGoldStandardaregettingmoreengagedinArticle6activitiesandaretakingstepstofacilitateArticle6transactions.Thisincludes,forexample,adaptingtheirregistrysystemsandimprovingoveralltransparencyandtrackabilityofcredittransactionslinkedornotlinkedtoacorrespondingadjustment.TherecentpartnershipannouncementbytheSwedishEnergyAgencyandGoldStandard,underwhichtheSwedishEnergyAgencywilluseadaptedGoldStandardrules,framework,andinfrastructurestofacilitateitsArticle6transactions,152isanexampleoftheblurringlinesbetweenthevoluntaryandcompliancemarkets.50FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESInaddition,theVoluntaryCarbonMarketInitiative,amultistakeholderinitiativedevelopedtodrivecredibleengagementwiththecreditingmarket,releasedinitialguidanceforaligningthevoluntarycarbonmarketwiththeParisAgreement’sgoalsandformaintainingmarketintegrityfromthedemandside.Prioritiesincludeprovidingrobustapproachestosetcompanies’targets,definingclaims,andusinghigh-integritycredits.153Theseinitiativesaresharpeningrecommendationsonpromotinghigherintegrityoffsettingclaims,includingwhichtypesofcreditscanbeusedforwhichtypesofclaims.Severalgovernanceinitiativesthatoffercarboncreditqualityassessmentsarebeginningtoemerge.lxiiiForinstance,theWorldWildlifeFund,theÖko-Institut,andtheEnvironmentalDefenseFundlaunchedtheCarbonCreditQualityInitiative,whichaimstodeliveraninteractivewebapplicationforscoringcarboncreditquality.PrivatecompaniessuchasBeZero,Sylvera,andCalyxGlobalareprovidingsimilarservices.TheWorldBankprovidesanassessmentframeworkforassessingdifferingqualitiesofmitigationactivitiesinfourareas—environmentalintegrity,managemententity,financialstructure,andsustainabledevelopmentbenefit.154Alongwithinitiativesratingthequalityofcarboncredits,thiswilllikelyseecreditpricinglinkedtowhethercreditsmeetagivensetofqualitystandards.Anothersetofinitiativesissupportingcompaniesinsettingandmeetingtheirclimatetargetsandincreasingtheirambitionwhilesettingspecificrulesonhowcarboncreditscanbeusedforcompliance.ExamplesincludetheClimateAction100+,TransformtoNetZero,theClimatePledge,andtheUNRacetoZero.Overthepastyear,theScience-BasedTargetsInitiative(SBTi),amultistakeholderinitiativedevelopedtopromotebestpracticeincorporateclimatetargetsettinginlinewithclimatescience,sawconsiderableprogress.InJuly2021,theinitiativepublisheditsCorporateNetZeroStandard,whichspecifiesrestrictedscenariosinwhichtheuseofcarboncreditswillbeacceptedformeetingnetzerotargets.lxivItalsoannouncedupcomingchangestoitsdefinitionof“science-based,”whichwillchangefrom2°Corbelowto1.5°Corbelow.StartinginJune2022,theinitiativewillnolongeraccepttargetsubmissionsthatfallbelowthislevel,inabidtodriveupambition.Despitethesepositivedevelopments,theSBTicameundercriticismfromcivilsocietyvoicesandcompaniesforarangeoftransparencyandmethodologicalissuesin2021,includingconcernsthatitstarget-settingapproachmaynotalignwithglobaltemperaturegoals.155lxiiiSomeoftheseinitiativesarerelativelynewandarestillinthepilotstage,andonlyafewhavepubliclydisclosedtheirassessmentmethodology.lxivThestandardspecifiesthattheonlyinstanceinwhichtheuseofoffsetswillbeacceptedistocompensateresidualemissionsthatlieoutsidethescopeofacompany’sscience-basedandnetzerotargets.Theguidancerestrictstheuseofoffsetsbycompaniesforcompensationpurposesthatreplacedirectemissionreductionactivities.Basedonthisguidance,anincreasingnumberofcompaniesareseekingtodemonstratetheirclimateambition.Globally,justunder2,500companiesworldwidehavenowsigneduptotheSBTi,andjustunderhalf(1,155)haveapprovedscience-basedtargets.156Bytheendof2021,followingtheSBTi’supdatedguidanceandits“BusinessAmbitionfor1.5°C”campaign,1.5°C-alignedtargetswerethemostcommontargettypesubmittedbythecorporatesector,accountingfor75%ofalltargetssubmittedthroughouttheyear.AlthoughmanyofthenetzerotargetsannouncedbydifferentgroupsarelessambitiousthantheParisAgreementrequires,overall1,045companiesrepresentingUSD23trillioninmarketcapitalizationhavecommittedinthepastyeartosettargetsthatalignwitha1.5°Cpathway.157Severalgroupsareprioritizingtheroleofremovalsversusreductionsforlimitingglobalwarmingto1.5°Candachievingnetzero;however,thedeploymentofcertainremovaltechnologiesatthetimeandscaleneededhasnotyetoccurred.InitiativessuchastheOxfordPrinciplesforNetZeroAlignedCarbonOffsettingandtheSBTihaveencouragedcompaniestoprioritizeoffsetsthatremovecarbonfromtheatmosphere(forinstancethroughreforestationordirectaircarboncapture)overreduction-basedoffsetsthatderivefromeffortstopreventextracarbonemissionsenteringtheatmosphere.However,asdescribedinsection3.3meetingthisdemandischallengingduetolimitedsupplyandthedifficultyinguaranteeingthepermanencyofthoseemissionsundergroundinthelongterm.Supplyingremoval-basedcreditsbasedsolelyonnewtechnologiessuchasdirectaircapturestillhasprohibitiveprices,uptoUSD600/tCO2sequestered.15851FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESAnnexAMethodologiesandsources52FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXES1.Sourcesandtimelines:TheStateandTrendsofCarbonPricing2022reportdrawsonarangeofsources,includingofficialreporting(i.e.,governmentbudgetdocuments),relatedlegislationthatunderpinsthecarbonpricinginitiative,statementsfromgovernmentsandpublicauthorities,andinformationprovidedbyjurisdictions.DataandupdatesinthereportrepresentthesituationasofApril1,2022,unlessstatedotherwise.2.Carbonpricinginstruments:Theauthorsrecognizethatclassificationsofcarbonpricinginstrumentsotherthanthoseusedinthisreportarepossible.“ETS”refersnotonlytocap-and-tradesystemsbutalsotobaseline-and-creditsystems.3.Emissions:InformationonGHGemissionsisbasedon2018EDGARv6.0GHGemissionsdata,159whereavailable,or2018emissionsdatafromofficialsourcestobeconsistentacrossjurisdictions.•GHGemissionsvaluesforCanadianprovincesandterritoriesaretakenfromCanada’ssubmissiontotheUNFCCC.160•GHGemissionsvaluesforUSstatesarebasedonofficialsubnationalGHGinventoryreportsofeachoftherespectivestates.4.Coverage:TheproportionofglobalGHGemissionscoveredbyadirectcarbonpriceiscalculatedbasedondirectcarbonpricinginstrumentsinoperation.Thecalculationofemissionscoveragebycarbonpricinginstrumentsisbasedonofficialgovernmentsourcesbutdoesnotnecessarilyfactorinexemptionsand/oremissionsthresholds.5.Statusofcarbonpricinginstruments:Carbonpricinginstrumentsareconsidered“scheduledforimplementation”oncetheyhavebeenformallyadoptedthroughlegislationandhaveanofficial,plannedstartdate.Carbonpricinginstrumentsareconsidered“underconsideration”ifthegovernmenthasannounceditsintentiontoworktowardtheimplementationofacarbonpricinginitiativeandthishasbeenformallyconfirmedbyofficialgovernmentsources.6.Price:Additionalpriceinformationisfurtherclarifiedhere:•AsMexicoiscurrentlyoperatingitspilotETSwith100%freeallocation,thereisnopriceinformationcurrentlyavailable.•MassachusettsETSpricedataisequaltotheMarch18,2022auctionclearingprice.161•CaliforniaandQuébeccap-and-tradepricedataistheCaliforniaCarbonAllowanceVintage2022FuturesforAprilonApril1,2022.162•RGGIpricedataistheweightedaverageoftheallowancetransfertransactionpricesonMarch31,2022for01/01/2021-12/31/2023allowancecontrolperiodconvertedfromUSD/shorttonsCO2etoUSD/metrictonsCO2e.163•UKETSpricedataistheUKAllowance(UKA)FuturesPriceforDecember2022contractonApril1,2022.1647.Revenue:ForjurisdictionswithfiscalyearstartingonApril1,therevenuebetweenJanuary1,2021andDecember31,2021isestimatedbytheadditionofone-quarteroftheApril1,2020–April1,2021revenueandthree-fourthsoftheApril1,2021–April1,2022revenueestimate.Frenchcarbontaxrevenueforfiscalyear2021wasnotreleasedbeforethereportwasfinalized.TherevenuefigureestimateisprovidedbytheFrenchTreasuryofficials.8.Exchangerateconversions:PriceandrevenuedataareconvertedfromnationalcurrencytoUSDusingtheIMFexchangeratesonApril1,2022.1659.2021ETSpricedevelopments:PricedevelopmentdataistakenfromtheInternationalCarbonActionPartnership’sAllowancePriceExplorer,whichhasup-to-dateinformationonallowancepricesinETSs.Thefollowingsourceswerealsodrawnupon:California(theCaliforniaAirResourcesBoardwebsite),EUETS(spotpricedataisprovidedbytheEuropeanEnergyExchangegroup),Québec(theMinistryfortheFightAgainstClimateChangewebsite),RGGI(RGGIwebsite),Switzerland(IntercontinentalExchangeandtheSwissEmissionsRegistry).10.Creditingmechanisms:IntheRepublicofKorea’soffsetcreditingmechanism,thenumberofissuedcreditsreferstocreditsconvertedtoKoreanCreditUnits,whichcanbesurrenderedforcomplianceinthenationalETS.11.Creditingdemanddata:VoluntarycarbonmarketdataisprovidedbyForestTrends’non-profitinitiativeEcosystemMarketplace.EcosystemMarketplacedatacontainstradedetailssuchasprice,volume,andothercarboncreditprojectandtransactionattributes.Thedatasetfor2021hadnotbeenfinalizedbythetimethisreportwaspublishedandthereforemarketvaluefiguresdonotrepresentacompleteannualpicture.However,EcosystemMarketplace’sdatasetremainsthemostcomprehensiveavailableforthe2021calendaryear.EcosystemMarketplacewillreleaseupdated2021figureslaterin2022oncedatafromallrespondentshasbeencollected.53FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESAnnexBCarbontaxandETSupdates54FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESThissectionoutlinessignificantdevelopmentsinregional,national,andsubnationalcarbontaxesandETSsworldwide.Wherenosignificantchangesoccurredoverthepastyear,thesemechanisms/jurisdictionsarenotincluded.FormoredetailedinformationonallcarbontaxesandETSs,pleaserefertotheCarbonPricingDashboard,aninteractiveonlineplatformthatprovidesup-to-dateinformationonexistingandemergingcarbonpricinginstrumentsaroundtheworld.ARGENTINAThequarterlytaxrateupdatefor2021waspostponeduntil2022forgasolineandgasoil.AUSTRIAAustriawillimplementacarbonlevyofofEUR30(USD33)/tCO2einJuly2022underitsnationalETSaspartofbroaderfiscalreformsintheEco-SocialTaxReformAct2022(ÖkosozialesSteuerreformgesetz2022)thatalsoplanstoreducecorporateandincometaxrates.ThenationalemissiontradingsystemcoversmainlyheatingandtransportationemissionsnotcoveredundertheEUETS.TherateisplannedtorisetoEUR35(USD39)/tCO2ein2023,toEUR45(USD50)/tCO2ein2024,andtoEUR55(USD61)/tCO2ein2025duringthefixed-pricephase.Amarketphasewillfollowfrom2026,subjecttoareviewin2024andconsideringdevelopmentsontheEUlevel.BOTSWANAParliamentapprovedBotswana’sNationalClimateChangePolicyduring2021,whichestablishesacommitmenttoexplorethedevelopmentofacarbonprice,includingadoptingandenforcingacarbontax.BRAZILAttheendof2021,thepresidencyoftheRepublicreleasedforpublicconsultationadraftlawcreatingtheNationalPolicyonClimateChangeandGreenGrowth,whichwouldestablishtheobjectives,principles,andguidelinesofapotentialcarbonpricinginstrument.TwoparallelandongoingprocessesareconsideringtheimplementationofanETSinBrazil.Oneisthe“ConsiderationofEnvironmentalBenefitsintheElectricitySector”underLaw14,120/2021,coordinatedbytheEnergyResearchCorporation(EmpresadePesquisaEnergética[EPE])andtheMinistryofMinesandEnergy,withthesupportoftheInternationalEnergyAgency.InworkshopsorganizedbytheEPEin2021,stakeholdersdiscussedthepossibilityofimplementinganETSinthepowersector,aswellasdifferentdesignoptions.AnotherprocessisthediscussionofbillsattheBrazilianNationalCongress,includingBill528/2021.ThisbillwouldcreatetheBrazilianMarketofEmissionReductionsandgivethegovernmentaperiodoffiveyearstodevelopregulationsforthenationalprogramofemissionreductions.Oneversionofthisbill,whichiscurrentlybeingdiscussed,wouldprovideforanETSinBrazil.Inthiscontext,severalproposalsfromtheprivatesectorandcivilsocietyhavealsoemergedaroundtheestablishmentofanETSinthecountry.BRUNEIIn2021,BruneiDarussalamexploredapreliminaryscopingforcarbonpricingwhichincludesanemissionthresholdaswellastargetedsub-sectors.Thegovernmentalsoconductedaworkshoponcarbonpricingpoliciesthataimsatshapingthedirectionforcarbonpricingpolicyinthecountryaswellaslearningfromtheexperiencesofothercountries.Theworkshopwasco-organizedbytheBruneiClimateChangeSecretariatandtheASEANCentreforEnergywithsupportfromtheInstituteofPolicyStudiesoftheUniversityofBruneiDarussalam.CANADAOnFebruary2021,thefederalgovernmentlauncheditsreviewoftheoutput-basedpricingsystem(OBPS)regulations.Theconsultationpaperproposesanannualtighteningrateofupto2%forfacilitiesundertheOBPSfrom2023(dependingoncarbonleakagerisk).MorestringentperformancestandardsareproposedtocontributetoCanada’sstrengthenedGHGemissionsreductiongoals.Proposedamendmentsareanticipatedtoenterintoforcein2023.InAugust2021,thefederalgovernmentreleasedupdatestoitsbenchmark,whichconfirmstheminimumnationalcarbonpricesfortheperiod2023to2030andstrengthenstheminimumnationalstringencycriteriaforcarbonpricingsystemsinCanada.ThefederalGreenhouseGasPollutionPricingAct,whichsetsaminimumnationalstandardonGHGemissionspricing,hasbeensubjecttorecentcourtchallengesbymultipleprovinces.OnMarch25,2021,theSupremeCourtofCanadaruledthatthelegislationisconstitutional.ThefuelchargeratesarebasedonacarbonpriceofCAD50(USD40)/tCO2ein2022.Therecentrevisiontothepolicyextendedthepricetrajectoryupto2030,withtheminimumrateincreasingbyCAD15(USD12)/tCO2eeachyear,untilitreachesCAD170(USD136)/tCO2ein2030.55FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESTABLEB.1CarbonpricingdevelopmentsinselectedCanadianprovincesandterritoriesJURISDICTIONRECENTDEVELOPMENTSAlbertaThefixed-pricecomplianceoptionundertheTechnologyInnovationandEmissionsReductionRegulationincreasedfromCAD40(USD32)/tCO2ein2021toCAD50(USD40)/tCO2ein2022.BritishColumbiaOnApril1,2021,BC'scarbontaxraterosefromCAD40toCAD45/tCO2e.TherateisscheduledtoincreasetoCAD50/tCO2eonApril1,2022.BCrecentlycommittedtoexceedingthefederalbackstoprate,whichisscheduledtorisetoCAD170by2030.NewBrunswickTheNewBrunswickOBPShasreplacedthefederalOBPSinthisjurisdiction.NewfoundlandandLabradorAdjustmentstocarbontaxratestookeffectonJuly1,2021.NovaScotiaThecurrentfederalapprovalfortheprovince’scarbonpricingsystemexpiresafter2022andNovaScotiaisreviewingoptionsforpost-2022carbonpricing.NovaScotiaheldapublicconsultationin2021,whichcoveredcarbonpricingaswellasbroaderenvironmentalgoalsandclimatechangepolicies.OntarioOntariotransitionedfromthefederalOBPStotheOntarioEmissionsPerformanceStandardsprogramasofJanuary1,2022.QuébecThefourthcomplianceperiodbeganinJanuary2021andnewregulationstookeffect,includingamendedpricetiersforallowancesinthereserveaccount,toalignwiththeCaliforniaCap-and-TradeProgram.Forthe2021–2023period,assistancewasadjustedbasedoneachsector’scarbonleakagerisks.Emissions-intensivetradeexposed(EITE)sectorsarecategorizedashavinglow,medium,orhighrisk,withassistancefactorsof90%,95%,and100%respectively.Priorto2021,assistancefactorsforallEITEsectorsweresetat100%.Inearly2021,Québecalsoannouncedpotentialchangestothefreeallocationrulesfortheperiod2024–2030.SaskatchewanChangestothefederalbackstophaveforcedaredesignofSaskatchewan’sOBPS.TheprovinceiscurrentlydevelopingOBPS2023,tobeimplementedonJanuary1,2023.56FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESCHILEChile’sdraftFrameworkLawonClimateChangewasapprovedbytheSenateinOctober2021andwaspassedtotheChamberofDeputiestocontinueitslegislativeprocess.ThedraftFrameworkLawdefinesasysteminwhichtheMinistryofEnvironmentwouldestablishGHGemissionslimitsforindividualorgroupsofemittingsources(intCO2e/year).InDecember2021,theChileangovernmentrecommendedacarbontaxofatleastUSD35/tCO2bytheendofthedecadeaspartofanupdatedEnergyPolicy2050.Thenewpresident-electproposedaGreenTaxReformincludingagradualincreaseofthecarbontaxuptoUSD40/tCO2,butnotimeframewasspecified.CHINA2021sawChina’snationalETScompleteitsfirstfullcompliancecycle,withareportedcompliancerateof99.5%.Over2,100largeemittersinthepowersectorwereobligatedtoparticipateduringthiscycle,coveringabout4.5billiontCO2eperyear—over30%ofChina’stotalGHGemissions.Pricesforemissionsallowancesremainrelativelylowcomparedtootherpricingsystems,closingataroundCNY54.2(USD8.5)/tCO2onDecember31,2021,thelastdayofthefirstcompliancecycle.TABLEB.2DevelopmentsinChina’ssubnationalpilotsJURISDICTIONRECENTDEVELOPMENTSChongqingAuctioningwasintroducedin2021,withtwoauctionsheldattheendof2021.Thefirstauction,heldinNovember2021,sold3.5millionallowancesonofferwhilethesecondauctioninDecembersold5.3millionallowances.Inaddition,fromOctober2021liableentitiescanusecarboncreditsfromtheChongqingcarbonoffsetmechanismtooffsetupto8%oftheiremissionliabilities.FujianTheFujianETSachieved100%compliancefor2020.Theprovince’sfirstintegratedcarbonmarketserviceplatformwaslaunchedinDecember2021.TheFujianProvincialDepartmentofEcologyandEnvironmentreleasedthelatestpubliclyavailabledetailedallocationplan,for2020,inOctober2021.GuangdongTheGuangdongETSachieved100%compliancefor2020.PowersectorentitiestransitionedtothenationalETSafter2020,whichwasreflectedinthe2021allocationplanreleasedinDecember2021.Theallocationplanalsostatedthat,from2022onwards,thethresholdtoenterthecompliancemarketwilldropfrom20,000tCO2to10,000tCO2/year.HubeiTheHubeiDepartmentofEcologyandEnvironmentreleasedthe2020allocationplaninSeptember2021,whichincludedadjustmentstothecaptoreflectthetransferofpowersectorentitiesintothenationalETS.Twoauctionswereheldin2021,withcloseto2.8millionallowancesauctioned.57FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESShanghaiShanghaireleasedits2020allocationinJanuary2021,whichreflectedthetransitionofthepowersector(including19coal-firedpowerplants)tothenationalETSandtheadditionof27newcompanies,representingarecordforthehighestnumberofcompaniesincludedintheShanghairegionalcarbonmarketsinceitslaunch.AuctionswereheldinAugustandSeptember2021,generatingatotalrevenueofCNY21.59million.ShenzhenTheShenzhenETSachieved100%compliancefor2020.InJune2021,theShenzhenMunicipalBureauofJusticereleaseddraftInterimMeasuresfortheManagementofCarbonEmissionsTradingforpublicconsultation,whichincluded(amongotherthings)apotentialtransitiontoanabsolutecapandanincreaseinthenumberofallowancesauctioned.TianjinTheTianjinETSachieved100%compliancefor2020.TheTianjinpilotheldtwoauctionsin2021andsold3.5millionallowances.InSeptember2021,theStandingCommitteeofTianjinMunicipalPeople’sCongressissuedtheTianjinCarbonPeakingandNeutralityPromotionRegulations.Forthefirsttime,thisregulationformallyintroducesfinancialpenaltiesfornoncomplianceintheregionalcarbonmarketthroughhigh-levelregionallegislation.COLOMBIALaw2169ofDecember2021establishedthat,asof2023,halfofcarbontaxrevenueswillbeused,amongothers,incoastalerosionmanagement,conservationofwatersources,andtheprotectionofecosystems.TheotherhalfofrevenueswillbeusedforfinancingtheProgramfortheSubstitutionofIllicitUseCrops(ProgramaNacionalIntegraldeSustitucióndeCultivosdeUsoIlícito).TheETSdesigniscurrentlybeinganalyzedbythegovernment.TheClimateActionLaw(LeydeAcciónClimática),whichcameintoforceinDecember2021,consolidatesthecommitmentspresentedinColombia’sNDCandsetsagoaltofullyimplementtheETSby2030.ThislawhasalsosetanobligationforlegalpersonstoreportdirectandindirectGHGemissions,followingcriteriatobesetbytheMinistryofEnvironmentandSustainableDevelopment(Minambiente).CÔTED'IVOIREFivepreliminarystudieshavebeendevelopedonthefollowingtopics:•Benefitsbeyondclimate:Economicco-benefitsofcarbontaxationinCôted’Ivoire,•Proposalsforafiscalbonus-malusmechanismforthepromotionofsustainablecocoainCôted’Ivoire,•FiscalinstrumentstointernalizetheenvironmentalcostsofsolidwasteinCôted’Ivoire,•VehicletaxationreforminCôted’Ivoire:Theecologicalbonus-malus,•EnvironmentaltaxationinCôted'Ivoire:Inventoryandidentificationofcarbonpricingopportunities.Thesestudiesareexpectedtobepresentedanddisseminatedtolocalstakeholdersin2022andthenextstepswillbeinformedbyfeedbackprovidedthroughthisconsultationprocess.DENMARKInDecember2020,relatedtotheClimateAct,theDanishgovernmentannouncedaGreenTaxReformtoachieveDenmark’semissionsreductiongoal.ThereformdidnotincludeanyprovisionsontheDanishcarbontax.EUROPEANUNIONTheEuropeanClimateLawenteredintoforceinJuly2021,settingnewbindingEU-wideclimatetargetsfor2030(55%cutinGHGemissionscomparedto1990levels)and2050(netzeroemissions),andinitiatingaprocesstodevelopa2040target.58FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESAspartofthebroaderpackageoflegislationundertheEuropeanGreenDealthatwasannouncedin2020,theEuropeanCommissionputforwardapolicyreformpackagetodeliverontheEuropeanGreenDealandaligndecarbonizationeffortswiththeupdated2030climatetarget.ThepackageplacestheEUETSattheheartoftheEU’sdecarbonizationagendawithmajorchangesthatinclude•anincreasedlinearreductionfactorfrom2.2%to4.2%,andaone-offreductiontothecaptobeappliedretroactivelywhenthelegislativeprocessfortherevisionisconcluded;•theinclusionofthemaritimesectorintothemarket’sscopefrom2023,andaseparatefuelETSforbuildingsandroadtransport;•theintroductionofuniformproductbenchmarkstosupportbreakthroughtechnologies,morestringentbenchmarkvalues,andaprovisionthatwouldrenderfreeallocationconditionalonlow-carboninvestmentbythereceivingentity;•thegradualphase-outoffreeallocationtoaviationsector;•theintroductionofaCBAMthatpricesimportedgoodsbasedontheirembeddedemissionsfrom2026;•updatedparametersoftheMSRincludinganewbufferthresholdandanextensionofthecurrentintakerateof24%beyond2023;and•newregulationsaroundrevenueusetoaddressdistributionaleffectsandspurinnovation,includingthecreationoftheSocialClimateFund.Theupdates,splitintoseverallegislativeproposals,followanextensiveprocessthatincludedmultipleconsultationrounds.TheCouncilandtheEuropeanParliamentneedtoagreeontheirfinalformbeforetheycantakeeffect.FINLANDFromJanuary1,2019,FinlandchangedthemethodologytocalculatetheCO2emissionsforheatingfuelsandfuelsforworkmachinescoveredunderitscarbontax,wherebyfulllifecycleemissionsofthefuelsarenowincludedinsteadofonlycombustionemissions.Tolimittheadditionaltaxburdenduetothischange,thecarbontaxrateofthesefuelsdecreasedfromEUR62(USD69)/tCO2etoEUR53(USD59)/tC2e.Inaddition,thepartialcarbontaxexemptionforcombinedheatandpowerplantswasturnedintoapartialenergytaxexemption,resultinginasmallincreaseofthetaxburdenoncoaltosupportthetransitionawayfromcoaluse.TheelectricitytaxclassII(industry,agriculture,mining,datacenters)wasloweredtotheEUminimumin2021andatthesametimethetaxrefundforenergy-intensiveenterpriseswillbeabolishedoverthefour-yeartransitionperiod2021–2025(refundfromallenergytaxesincludingCO2componentoftheenergytaxrate).Taxationonheatingfuels,suchascoal,naturalgas,peat,andfueloil,wasincreasedbyEUR2.7/megawatt-hourfromthebeginningof2021(theincreasewasmadetotheenergycontenttax).GERMANYGermanysuccessfullylauncheditsnationalfuelETSonJanuary1,2021atafixedpriceofpriceofEUR25(USD28)/tCO2eandthesaleofNationalEmissionsTradingScheme(nEHS)allowancesstartedinOctober2021.AllfuelemissionsnotregulatedundertheEUETS(mainlyheatingandroadtransport)arecovered.Theseemissionsstemfromavarietyofsources,suchasheating,oil,naturalgas,petrol,anddiesel.Somefuels(e.g.,coalandwaste)willbephasedinsubsequentlyin2023.ThenationalETSwillbephasedingraduallywithafixedpriceonemissionallowancesfrom2021to2025.Inthenextyears,thefixedpricewillcontinuouslyrisetoEUR55(USD61)/tCO2ein2025.In2026,allowanceswillbeauctionedinapricecorridorrangingbetweenEUR55(USD61)/tCO2eandEUR65(USD72)/tCO2e.From2027onwards,allowancepriceswillbesetbythemarketunlessthegovernmentproposesanewpricecorridorin2025.ThecapissetbasedonGermany’smitigationtargetsforsectorsnotcoveredbytheEUETSasoutlinedintheEUEffortSharingRegulation.Revenuewillbeusedforavarietyofmeasures,inparticulartosupportdecarbonization,tolowerelectricityratesforconsumers,andtodeducttransportcostsfromincometaxesforcommuters.InJuly2021,aCarbonLeakageRegulationwasadoptedthataimstoensurecross-bordercompetitivenessoffirmsregulatedunderthenEHS.ThenextstepsintheimplementationofthenEHSincludeamendingtheFuelEmissionsTradingRegulationbydeterminingtheannualcapofthenEHSandintroducinghardshipprovisions.AfirstdraftwaspublishedinOctober2021.INDONESIAInOctober2021,theIndonesianHouseofRepresentativespassedalawontaxregulationharmonization.Whilethelawincludesasuiteofbroadertaxreforms,italsoincludestheintroductionofacarbontax.TheintroductionofacarbontaxispartofIndonesia’sbroaderCarbonPricingRoadmap,setoutinapresidentialumbrellaregulationalsosignedinOctober2021,whichincludesalonger-termplanforintroducinganETSandacarboncreditingmechanism.ThecarbontaxwasinitiallysettocommenceinApril2022butwaspushedbacktocommencinginJulyinlightofrisingenergycommodityprices.TheMinistryofEnergyandMineralResourcesislookingtodetermineemissioncapsforcoal-firedpowerstationsin2022.The59FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESgovernmentisfurtherassessingthepotentialtoapplyacarbonpricetoothersectors(accordingtosectorreadiness),withtheaimofhavingabroad-coveragecarbonpricingpolicymiximplementedby2025.Apresidentialregulationthatprovidesanationallegalumbrellaforthedevelopmentofcarbonpricinginstruments,includinganETS,wassignedinOctober2021.AsofMarch2022,thegovernmentisworkingonasetofdraftregulationstoguidethedevelopmentandimplementationofcarbonpricinginstrumentsinIndonesia,includingontheproceduresforimplementinganETSinthepowersector.TheETSregulation,preparedbytheMinistryofEnergyandMineralResources,willoutlinethebroadcompliancerequirementsandhigh-leveldesignaspects.IRELANDTheFinanceAct2020legislatedforannualincreasesincarbontaxtoEUR100(USD111)/tCO2by2030.AseriesofannualincreasesofEUR7.50(USD8.3)applytotheamountchargedpermetrictonofCO2emittedcomingintoeffectfrom2021andforeachyearthereafteruptoandincluding2029withafinalincreaseofEUR6.5(USD7.2)in2030.CarbontaxforpetrolanddieselincreasedfromEUR26(USD29)/tCO2toEUR33.5(USD37)/tCO2onOctober14,2020.TheincreaseextendedtoallotherfuelsonwhichthetaxisappliedinMay2021.ThesecondincreaseofEUR7.50(USD8.3)/tCO2,fromEUR33.50(USD37)/tCO2toEUR41.00(USD45)/tCO2emittedappliesfromOctober13,2021forautofuelsandMay1,2022forallotherfuels.ISRAELInAugust2021,theIsraeliMinistersofEnvironmentalProtection,Finance,Energy,andEconomyannouncedtheintentiontoimplementacarbontaxin2023.Thecarbontaxisanticipatedtobeappliedthroughtheexistingfuelexcisesystemandwillcovercoal,LPG,fueloil,petcoke,andnaturalgasfrom2023.OtherinitiativesareplannedtoaddressGHGemissionsfromwasteandlandfillsandothersources.Dieselandgasolineusedforroadtransportationwillnotbetaxedfurtherandthecarbontaxwillreplaceashareoftheexistingexcisetax.Also,theimplementationofthetaxratesisnotintendedtocausethepriceofelectricitytoincreasebymorethan5%until2028undertheproposedlegislation.JAPANJapan’sprimeministerhasaskedtwodifferentministriestodevelopandproposeacarbonpricingmechanismthatcancontributetogrowth.TheMinistryoftheEnvironmentresumeddiscussionsattheSubcommitteeonUtilizationofCarbonPricingonFebruary1,2021whiletheMinistryofEconomy,TradeandIndustrystartedacarbonpricingstudygroupinmid-February2021.OneoptionbeingprogressedisadetaileddesignfortheimplementationoftheGreenTransformationLeague,abaseline-and-creditsystemforcompaniessettingvoluntarytargets.ThisnewmechanismwilllikelybuildonexistingcarbontradingsystemssuchastheJCMorJ-Creditscheme.SaitamaTheSaitamaETSisinitsthirdcomplianceperiod(FY2020–2024),whichrequiresfacilitiestoreduceemissionsby20%or22%belowbaselineemissions,dependingontheircategory.TokyoInJune2021,theTokyoMetropolitanGovernmentreleasedemissionsdataforFY2019.Dataindicatesthatcoveredfacilityemissionswerereducedby27%duringthefiveyearsofthesecondcomplianceperiod(FY2015–FY2019)comparedtobase-yearemissions.Thisrepresentedanoverachievementonthetargetsetfortheperiod.MALAYSIATheMalaysianMinistryofEnvironmentandWaterisworkingwithotherrelevantministries,includingtheMinistryofFinance,todevelopanETSpolicyandimplementationframework.AtthesametimetheGovernmentofMalaysiacontinuestoconsiderthepotentialforimplementingothercarbonpricingpolicies,includingacarbontaxandvoluntarycarbonmarkets.MEXICOInMarch2022,theSecretaríadeHaciendayCréditoPúblicoannouncedexemptionstothecarbontaxappliedtogasolineanddiesel.MONTENEGROInOctober2021,alongwithotherWesternBalkanstates,MontenegroagreedwiththeEUonaroadmapforimplementationreflectedintheGreenAgendaActionPlan.TheEUwillsupportsucheffortswithEUR9billion(USD10.6billion)ingrantsandEUR20billion(USD26.3billion)ininvestments.Undertheagreement,MontenegrowillneedtofullyalignitsnationallegislationwiththeEU’sby2024.ThestartdateoftheETShasnotyetbeenannounced.NETHERLANDSOnJanuary10,2022thenewDutchgovernmentwassworninanditsclimateaction60FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESplansaresetoutinthe2021–2025coalitionagreement.Referringtothecarbontax,theagreementstatesthatthegovernmentintendstoincreasetherateofthemarginallevy.Also,tomaintainpricecertainty,agraduallyincreasingpricefloorwillbeintroducedfortheEUETSprice,preferablyinagreementwithneighboringcountries.NEWZEALANDAnumberofreformstotheETSwereintroducedduring2021inlinewiththeapprovaloftheClimateChangeResponse(EmissionsTradingReform)AmendmentAct2020.Thereformsincludeanewcaponunitsupplyandtheintroductionofanauctioningmechanism(coincidingwiththewithdrawalofthefixed-priceoption,whichpreviouslyactedasapriceceiling).AuctioningbeganinMarch2021,with19millionallowancesmadeavailableforauctioning(plusanadditional7millionallowancesthatwerereleasedfromthecostcontainmentreserve).NORWAYInitsClimatePlanfor2021-2030,theformergovernmentannounceditsplanstoincreasethecarbontaxrateonnon-ETSemissionstoNOK2000(USD229)/tCO2e(in2020terms)by2030.Thecurrentgovernmenthasstatedthatitintendstofollowuponthismeasure.Tokeepupwiththepriceincreasetrajectory,Norwayincreasedtheratesofcarbontaxforapproximately30%formostfossilfuelsin2022.Thegeneraltaxrateonnon-ETSemissionsincreasedfromNOK591(USD68)/tCO2ein2021toNOK766(USD88)/tCO2ein2022.NorwayalsointroducedataxonwasteincinerationattherateofNOK192(USD22)/tCO2eandnaturalgasandLPGusedingreenhouseswhichwaspreviouslyexemptfromthecarbontax,attherateofNOK77(USD9)/tCO2e.ThegovernmentremovedcertainexemptionsfornaturalgasandLPGforcertainindustrialprocessesasofJanuary1,2020tostrengthenitsclimatepolicyandimprovethecost-effectivenessofitscarbontax.However,inrelationtotheCOVID-19disruptioninthefirsthalfof2020,theparliamenthasdecidedtoreinstatetheexemptionfornaturalgasandliquefiedpetroleumasofApril1,2020.Thetaxwasreintroducedbytheparliamentin2021,butnotputintoeffectduetoconcernsthattheexemptionforundertakingssubjecttotheETSwouldbeconsideredtoconstitutestateaidundertheEuropeanEconomicAreaAgreement.ThetaxwillbeputintoeffectassoonasthemeasurehasbeennotifiedandacceptedbytheEuropeanFreeTradeAgreementSurveillanceAuthority.AsofFebruary2022,thetaxhasnotyetbeenputintoeffect.PORTUGALAspartofthepackageofmeasurestorespondtotheextraordinaryincreaseinfuelprices,thePortuguesegovernmentdecidedtosuspendtheincreaseoftheCO2taxuntilMarch31,2022.TherateremainedatEUR23.921(USD26.4)/tCO2euntilMarch31,2022andapotentialincreasetothetaxisstillunderconsideration.Portugalstartedtoimplementacarbontaxonairandseatravel(Taxadecarbonosobreviagensaéreas)onJuly1,2021.AtaxofEUR2(USD2.2)willbeleviedonallairandseatravelpassengersdepartingfromPortugal.Noncommercialflightsareexemptfromthistax.REPUBLICOFKOREAPhase3oftheETScommencedin2021withastrictercapandanincreasedproportionofallowancesdistributedviaauction.Phase3hasalsoseenthird-partyparticipation,withthegovernmentapproving20financialinstitutionstoenterthemarketforthefirsttime.SINGAPOREThegovernmentannouncedtheoutcomesofthecarbontaxreviewaspartoftheNationalBudgetStatementdeliveredonFebruary18,2022.ThecarbontaxratewillbeincreasedtoSGD25/tCO2e(USD18/tCO2e)in2024and2025,andSGD45/tCO2e(USD33/tCO2e)in2026and2027,withaviewtoreachingSGD50-80/tCO2e(USD37-59/tCO2e)by2030.Therevisedtaxlevelsandtrajectoryprovideanappropriatepricesignalforbusinessesandindividualstoreducetheircarbonfootprintandenablethetransitiontoalow-carbonfuture.Theearlyannouncementprovidesbusinesseswithgreatercertaintyinplanningwhileenhancingthebusinesscasetoinvestinlow-carbontechnologiesandcarbonmarkets.Thegovernmenthasputinplaceschemestofinanciallysupportbusinesses’decarbonizationeffortsandwillcontinuetoreviewthesupportmeasuresforbusinessestoimplementneedle-movingdecarbonizationsolutionstoincreasecompetitiveness.Companieswillalsobeabletosurrenderhigh-qualityinternationalcarboncreditstooffsetupto5%oftheirtaxableemissionsfrom2024.Thiswillcushiontheimpactforcompaniesthatareabletosourceforcrediblecarboncreditsinacost-effectivemanner.Thiswillalsohelptocreatelocaldemandforhigh-qualitycarboncreditsandcatalyzethedevelopmentofwell-functioningandregulatedcarbonmarkets.AtransitionframeworkwillalsobeintroducedtogiveexistingEITEcompaniesmoretimetoadjusttoalow-carboneconomy.Tohelpmaintainbusinesscompetitivenessintheneartermandmitigatetheriskofcarbonleakage,existingfacilitiesinEITEsectorswillreceivetransitoryallowancesforpartoftheiremissions,basedonefficiencystandardsanddecarbonizationtargets.Thegovernmentrecognizesthat61FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESexistinginvestmentsweremadeamidstadifferentoperatingcontextandtherearenear-termchallengesintransitioningtolow-carbonoperations(e.g.,decarbonizationtechnologiesneedtimetomature).Newinvestmentswillnotqualifyforthetransitionframework.Thegovernmentiscurrentlyconsultingaffectedcompaniesontheframework.Thedetailswillbefinalizedby2023,aheadoftheincreaseofcarbontaxlevelin2024.SOUTHAFRICAAspartofthe2022budget,thegovernmentannouncedarangeofupdatestothecarbontax.ThesechangesincludeanincreaseinthecarbontaxratefromZAR134(USD9.2)/tCO2etoZAR144(USD9.8)/tCO2eforthe2022taxperiod.Thebudgetalsoproposesarangeofpotentialreformstothetransitionalphaseofthecarbontax.Undertheproposal,thetransitionalphasewouldbeextendedbythreeyearstoDecember31,2025andwouldincludeotherchangestotheavailablesupportmeasures,includingadjustingthethresholdforthemaximumtradeexposureallowancefrom30%to50%fromJanuary1,2023;extendingtheelectricitypriceneutralitycommitmentuntilDecember31,2025;andadjustingthecarbontaxrateappliedtoGHGemissionsexceedingthe(yettobelegislated)carbonbudgetstoaddressconcernsregardingdoublepenaltiestocompaniescoveredbyboththecarbontaxandcarbonbudgets.Atthesametimethegovernment’sproposalincludesmeasurestohelppromotethetransitiontoaclimate-resilienteconomyandtoimprovethelong-termcarbonpricesignal.Thisincludesaproposaltorevisehowfuturecarbontaxratesareset.TheproposalwouldincreasethecarbontaxratebyatleastUSD1eachyeartoreachUSD20/tCO2eby2026andthenforthecarbonpricetoincreasemorerapidlythereaftertoatleastUSD30by2030anduptoUSD120beyond2050.Thegovernmentalsointendstograduallyreducethebasictax-freeallowancesintheperiodfrom2026to2030andtoincreasethecarbonoffsetallowanceby5%fromJanuary1,2026toencourageinvestmentsincarbonoffsetprojects.Theseandotherproposalswillformpartofareviewforthesecondphase,toinformfuturebudgetannouncements.SPAINAconsultationprocesstomodifysomeelementsofthetaxonfluorinatedgasesstartedin2021.CataloniaThevicepresidencyofeconomyandfinanceofCataloniastartedapublicconsultationprocessonapossiblecarbontaxonMarch1,2022.ThepublicconsultationaimstoguaranteetheapplicabilityofthetaxongreenhousegasemissionsgeneratedbyeconomicactivitiesandtoachievetheenergytransitionobjectivesestablishedbyLaw16/2017onclimatechange.SWEDENOnAugust1,2019,Swedeneliminatedorreducedexemptionstoitscarbontaxaspartofasetofmeasurestoreachitsclimatetargetofnetzeroemissionsby2045.Thepartialexemptionfordieselusedinmining,whichstoodat40%ofthecarbontaxrate,wasabolished.Inaddition,theexemptionforfuelsusedtogenerateheatincogenerationfacilitiesthatfallundertheEUETSisreducedfrom89%to9%ifthisheatisnotusedinindustrialmanufacturingprocesses.ThisisinlinewithotherheatgenerationplantsintheEUETS.HeatgeneratedbyfacilitiesoutsideoftheEUETSremaintaxedatthefullcarbontaxrate,whichsitsatSEK1222(USD130)/tCO2in2022.Theannualadjustmentbygrossdomesticproducthasbeenpausedfor2021and2022forgasolineanddiesel.SWITZERLANDSwitzerland’sCO2levyautomaticallyincreasedtoCHF120(USD130)/tCO2estartingonJanuary1,2022,sinceemissionsoffossilheatingandprocessfuelsin2020werebeyond76%ofthesector’semissionsin1990.InSeptember2020,theSwissParliamentadoptedthelegalframeworkforSwissclimatepolicyuntil2030throughthefullyrevisedCO2Act(FederalActontheReductionofGreenhouseGasEmissions),whichsetouta50%emissionreductiontargetandreinforcedmeasuresforthetransport,buildings,andindustrysectors.ThefullyrevisedCO2Actwasplannedtoenterintoforcein2022.However,votersrejectedtherevisedCO2ActinareferendumheldonJune13,2021.Inresponsetothereferendum,inDecember2021theSwissParliamentadoptedaprolongationoftheCO2ActthroughapartialrevisionoftheCO2Actuntil2024.Itguaranteesacontinuationofexistingmeasures,includingtheCO2levyatitscurrentrateofofCHF120(USD130)/tCO2e.Thispartialrevisioncouldbesubjecttoareferendumcall,ifhandedinbyApril2022.TAIWAN,CHINASincethebeginningof2021,theTaiwanEnvironmentalProtectionAdministration(TEPA)hasbeenintheprocessofrevisingtheact.InJuly2021,theTEPAestablishedanewclimatechangeofficeunderittoacceleratepolicydevelopment.InlateOctober2021,thedraftofrevisionoftheGreenhouseGasControlActwaspublishedforpublicconsultationandrenamedasClimateChangeResponseAct.Thedraftlegislationproposesanewcarbonfeefordomesticemissions,whichwouldcommenceaheadofanETSmechanism.Theproposedcarbonfeewouldpotentiallycoverdirectand/orindirectemissionswiththepotentialtousedomesticoffsetstocovercarbonfeeliabilities.Carbonfeerevenueswouldbedirectedtowardsupportingdomesticclimatemitigationandalow-carboneconomy.62FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESAfterpublicconsultation,theClimateChangeResponseActisexpectedtobesubmittedtotheLegislativeYuaninthefirsthalfof2022forfurtherreviewandfinalization.FurtherdetailsofthecarbonfeeandETSwillbedevelopedviasub-laws.RegulatorydiscussionsarependingonthespecificdesignofthecarbonfeeandETSsystem,thetimelineofimplementation,andhowthecarbonfeecouldtransitionto(orcoexistwith)anETS.THAILANDFollowingCOP26,thegovernmentisdevelopingrulesandguidelinesforcarboncredittrading,expectedtobereleasedin2022.Aspartofthiswork,theThailandGreenhouseGasManagementOrganizationiscollaboratingwiththeFederationofThaiIndustriestodevelopacarboncredittradingplatform.UKRAINEUkraine’sparliamentapprovednewamendmentstothetaxcode—thecarbontaxrateincreasedfromUAH10(USD0.3)/tCO2etoUAH30(USD1)/tCO2estartingfromJanuary1,2022,andupto70%ofbudgetrevenuesfromcarbontaxeswillbedirectedtoreduceCO2emissionsandtoencouragedecarbonizationincertainsectors.BytheendofJune2022theCabinetofMinistersofUkraineplanstodevelopandsubmitadraftlawtotheparliamentonfurtheruseofsuchbudgetrevenues.UNITEDKINGDOMThefirstUKAauctiontookplaceinMay2021,withallofthemorethan6millionallowancesonoffersoldatthemarketclearingpriceofGBP43.99(USD58),wellabovetheauctionreservepriceofGBP22.00(USD29).ThesamedaymarkedthestartofUKAfuturestradingand,aweeklater,thegovernmenttransferredthefirstfreeUKAsforthe2021schemeyeartoeligibleregulatedentities.Theintroductionofnewallowancestothemarkethassincecontinuedthroughtwice-monthlyauctions.AnauctioninearlyOctober2021ofjustunder5.19millionUKAspartiallycleared,withabout4.15millionUKAsbeingsoldatGBP60.00(USD79).Asperthescheme’srules,thebidsbelowthispricelevelweredeemedtoofarbelowthesecondarymarketpriceatthetimeandthe1.04millionunsoldUKAsweredistributedacrossthefoursubsequentauctions.Allotherauctionsin2021clearedfully.Toavoidinstabilityinallowanceprices,theUKETShasacostcontainmentmechanism(CCM)thatallowsauctioningofadditionalallowances.WhilethemonthlyaverageUKApricesinSeptember,October,andNovember2021wereabovetheCCMtriggerpriceofGBP52.88(USD69.5),theUKETSAuthoritydecidednottointervene.TheCCMwastriggeredagaininJanuary2022andanannouncementwasmadeinmid-Januarythat,again,nointerventionwouldbemade.UNITEDSTATESMostcarbonpricingdevelopmentsintheUnitedStatesaretakingplaceonthesubnationallevel,assummarizedbelow.CaliforniaMajorchangestotheprogramtookeffectinJanuary2021,includingtheadditionofapriceceiling,theinclusionoftwoallowancepricecontainmentreservetiersbelowthepriceceiling,reductionsintheuseofoffsetcredits(especiallyforcreditsgeneratedfromprojectsthatdonotprovidedirectenvironmentalbenefitsinthestate),andasteeperallowancecapdeclineto2030.TheCaliforniaAirResourcesBoardlaunchedtheClimateChangeScopingPlanupdateprocessduring2021,whichseekstodeveloppolicystrategiestoachieve2030and2045targets.Thescopingplanwillbepublishedin2022.ByMay2021,pricesreachedrecordhighsforCaliforniaCarbonAllowances,asobservedbytheauctionsettlementpriceandinreportedpricesforcommodityexchangefuturescontractfornear-monthdeliveryandbrokeredtransactions.MassachusettsTheshareofETSallowancesdistributedthroughfreeallocationwas50%in2020.Thesystemchangedtofullauctioningin2021.InMarch2021,Massachusettspassedanewclimatelawwithbindingemissionreductiontargetsof50%below1990levelsby2030and75%below1990levelsby2040,aswellasnetzeroemissionsby2050.Thefirstprogramreview(requiredbyregulation)wasin2021,withareviewevery10yearsthereafter.Toaddresspotentialliquidityissues,theprogramreviewconsideredthefollowingactions:limitsonallowancebanking,auctioningoffutureallowances,andadjustmentofauctionbidlimits.OregonInDecember2021,theEnvironmentalQualityCommissionadoptedtherulesfortheClimateProtectionProgramthatstartedinJanuary2022.TheClimateProtectionProgramplacesadeclininglimitonGHGemissionsfromsuppliersofliquidfuelsandpropaneandnaturalgasutilities,alsodubbedlocaldistributioncompanies.RegionalGreenhouseGasInitiativeInMay2021,thefinalregulationtoestablishanETSinPennsylvaniacoveringCO2emissionsfromthepowersectorandtojoinRGGIwasreleasedalongsideupdatedmodelingresultsoftheeffectsoftheETS.ItwouldallowforRGGIparticipationstarting2022,barringlitigationoractionfromthestatelegislature.Pennsylvania’sshareofemissionsinthe2022RGGIcapisapproximately45%.63FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESAnemissionscontainmentreservestartedoperatingin2021.Theemissionscontainmentreserveisanautomaticadjustmentmechanismthatwilladjustthecapdownwardwhencarbonpricesarelowerthanexpected.TheRGGIstatesinitiatedtheThirdProgramReviewinsummer2021toanalyzeprogramsuccesses,impacts,potentialadditionalreductionstothecappost-2030,andotherdesignelements.Thereviewisexpectedtobeconcludedin2023.TransportationandClimateInitiativeProgramInJune2021,thefourparticipatingjurisdictionsreleasedafinalmodelrulefortheimplementationoftheTransportationandClimateInitiativeProgram(TCI-P),withreportingofemissionsandfuelshipmentdataundertheprogramscheduledtostartin2022.Inthesecondhalfof2021,mostoftheparticipatingstateshaltedparticipationintheproposedTCI-P.Accordingtothefinalmemorandumofunderstanding,thefirstcomplianceperiodofTCI-PwillcommenceJanuary1,2023oronce“atleastthreejurisdictionshavecompletedthelegalprocessesrequiredtoimplementtheirindividualprograms.”166Aftertherecentdevelopments,itisunlikelythattheimplementationofTCI-Pinitscurrentformwillcontinue.WashingtonInMay2021,GovernorJayInsleesignedintolawtheClimateCommitmentAct,whichputsinplaceaneconomy-widecap-and-investprogramthatbeginsinJanuary2023.URUGUAYUruguay’scarbontaxwasimplementedonJanuary1,2022,followingPresidentialDecree441/021.Thecarbontaxratefor2022isUYU5,645.45(approximatelyUSD137.29).VIETNAMInNovember2020,Vietnam’srevisedLawonEnvironmentalProtectionwasissued.TherevisedlawconfirmedtheroleofcarbonpricinginVietnam’smitigationpolicymix,providedthelegalmandateforthedevelopmentofadomesticemissionstradingschemeandanationalcreditingmechanism,andassignedministerialresponsibilities.TherevisedlawwillalsobesupplementedbyaPrimeMinisterialroadmapforCPIimplementation,whichiscurrentlyunderdevelopmentandisexpectedtobeissuedin2022.TheframeworklegislationalsoempowerstheMinistryofNaturalResourcesandEnvironmenttosettheemissionscapanddeterminethemethodofallowanceallocation,andallowsfortheinclusionofdomesticandinternationaloffsets.InJanuary2022,thegovernmentofVietnamissuedadecree,whichprovidesacomprehensivesetofregulationsundertherevisedLawonEnvironmentalProtectionandoutlinesaroadmapfortheirimplementation.Thedecreesetsforthrulesformonitoring,reporting,andverification(MRV)systemsandincludesprovisionsfordevelopinganationalETSwithadecliningcapcorrespondingtoVietnam’sNDCandtheestablishmentofanationalcreditingmechanism.VietnamanticipateslaunchingapilotETSin2026,beforelaunchingafullETSin2028.64FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESAnnexCCreditingmechanismupdates65FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESThisappendixpresentssignificantdevelopmentsincarboncreditingmechanismsintheyearuptoApril1,2022.Wherenosignificantchangesoccurredoverthepastyear,thesemechanismsarenotincluded.Figure16presentsanoverviewofdomesticandindependentcreditingmechanismsincludedinthisreport.FIGURE16Creditsissued,registeredactivities,average2021price,andsectorscoveredbycreditingmechanismsNameofthemechanismAverageprice(USD)SectorscoveredCreditingmechanisms:InternationalIndependentDomesticCreditsissued(MtCO2e)RegisteredactivitiesAgricultureCarboncaptureandstorageandCarboncaptureandutilizationEnergyefficiencyForestryFuelswitchFugitiveemissionsIndustrialgasesManufacturingOtherlanduseRenewableenergyTransportWasteBluecarbonAmericanCarbonRegistryClimateActionReserveGoldStandardVerifiedCarbonStandardPlanVivoCleanDevelopmentMechanismAlbertaEmissionOffsetSystemAustraliaEmissionReductionFundBeijingForestryOffsetMechanismBeijingParkingOffsetCreditingMechanismBritishColumbiaOffsetProgramCaliforniaComplianceOffsetProgramChinaGHGVoluntaryEmissionReductionProgramChongqingCreditingMechanismFujianForestryOffsetCreditingMechanismGuangdongPuHuiOffsetCreditingMechanismJ-CreditSchemeKazakhstanCreditingMechanismQuébecOffsetCreditingMechanismRepublicofKoreaOffsetCreditMechanismRGGICO2OffsetMechanismSaitamaForestAbsorptionCertificationSystemSaitamaTargetSettingEmissionsTradingSystemSpainFES-CO2programSwitzerlandCO2AttestationsCreditingMechanismTaiwanGHGOffsetManagementProgramThailandVoluntaryEmissionReductionProgramTokyoCap-and-TradeProgramJointCreditingMechanism8.84.843.8295.10.0159.50.417.1-0.002-17.4--0.30.30.90.10.25.2-06.40.91.412.430.010.0011844511101033142000380732044332801559201320325611.42.13.94.211.61.13211.9-12.78.97.6N/A14.90.6-8.22.7-4.61.6-3.13.5-6.613-20.8N/A15.510.7-29N/AN/A3.88.8128.2N/AN/A39-52.4N/A66FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESC.1DOMESTICCREDITINGMECHANISMSThissectionoutlinessignificantdevelopmentsinregional,national,andsubnationalcreditingmechanisms.Wherenosignificantchangesoccurredoverthepastyear,thesemechanisms/jurisdictionsarenotincluded.FormoredetailedinformationonallcarbontaxesandETSs,seeAnnexBandtheCarbonPricingDashboard,aninteractiveonlineplatformthatprovidesup-to-dateinformationonexistingandemergingcarbonpricinginstrumentsaroundtheworld.ALBERTAEMISSIONOFFSETSYSTEMQuantificationprotocolshavebeenupdatedoverthepastyeartocoveremissionsreductionsfromcapturingventedmethaneandforemissionsreductionsassociatedwithcarboncaptureandstorage.AUSTRALIAEMISSIONSREDUCTIONFUNDTheAustraliangovernmentisseekingtoincreasethenumberofmethodsavailabletopotentialprojectproponents.Forexample,anewmethodforcarboncaptureandstoragewasmadeavailableinOctober2021,andaBlueCarbonMethodbecameavailableduringJanuary2022.BEIJINGFORESTRYOFFSETMECHANISMWhiletherewerenoadditionalcreditsissuedduring2021,thegovernment’s2022ActionPlanonClimateChangereaffirmsthecommitmenttoincreasethecarbonsinkcapacityofforestryandgreenspaces.CHILECREDITINGMECHANISMThegovernmentofChilepublishedadraftclimatechangelawinJanuary2021thatwouldsetupabaseline-and-creditschemetodriveemissionsreductionsamongindividualcompaniesorgroupsofcompaniesasapolicytoachievesectorialcompliancewithChile’slong-termemissionreductiongoals.Theregulationforthecreditingmechanismhasbeenunderpublicconsultationandissubjecttochange.CHINAGHGVOLUNTARYEMISSIONREDUCTIONPROGRAMChina’sGHGVoluntaryEmissionReductionProgramwasimplementedin2012butwassuspendedin2017,meaningthatnewprojectshavenotbeenaddedsincethattime.Thegovernmentiscurrentlyconsideringare-relaunchoftheprogram.CHONGQINGCARBONOFFSETMECHANISMTheChongqingcarbonoffsetmechanismwaslaunchedinSeptember2021.AChongqingCertifiedEmissionsReductionsplatformforrealizingthevalueofecologicalproductswasreleasedatthefirstChina(Chongqing)GuangyangBayGreenandLow-carbonDevelopmentSummit.GUANGDONGPUHUIOFFSETCREDITINGMECHANISMNewPuHuiCertifiedEmissionsReductionstradingrulesonthequantityandpriceofcertaintransactiontypeswereestablishedinJune2020,followingasuspensionbytheprovincialgovernmentinAugust2018.Inearly2022,theGuangdonggovernmentconsultedonoptionstodeepenandimprovethecreditingmechanism.INDO-PACIFICCARBONOFFSETSSCHEMETheIndo-PacificCarbonOffsetsSchemeisdesignedtohelppartnercountriesgenerateandtradehigh-integritycarbonoffsetsundertheParisAgreement.InNovember2021,theAustraliangovernmentannouncedfourdraftdesignprinciples:transparentandinclusivegovernance;alignedwiththeParisAgreementandSDGs;responsibilityandcooperationamongstparties;andhigh-integrityunits.JOINTCREDITINGMECHANISMAfterCOP26,Japan’sMinisteroftheEnvironmentannouncedthatJapanwillexpandtheJCMpartnercountriesandstrengthenprojectdevelopmentandimplementationincollaborationwithinternationalorganizations,andscaleuptheJCMbymobilizingfurtherprivatefinance.QUÉBECOFFSETCREDITCOMPONENTOFTHECAP-AND-TRADEThegovernmentofQuébecestablishedacreditingprogramthatissuesQuébecoffsetcreditsintendedfororganizationswantingtomeetcomplianceobligationsundertheETS.In2021draftregulationsforafforestationandreforestationprojectswerereleased,andsignificanttechnicalworktowardcreditingforanaerobicmanuredigestion.REPUBLICOFKOREAOFFSETCREDITMECHANISMTheRepublicofKoreaoffsetcreditmechanismwasimplementedtoprovideoffsetcreditsforusewithinKorea’sETS.KoreanOffsetCredits(KOCs)mustbeconvertedintoKoreanCreditUnits(KCUs)bytheKoreangovernmentbeforetheycanbeusedforcomplianceobligations.LimitationshavebeenintroducedontheissuanceandconversionofoffsetcreditsinPhase3,whichcommencedin2021.Forexample,KOCsmustbeconvertedintoKCUswithintwoyearsaftertheenddayoftheKOCs’issuanceyear.Phase3hasalsoseeninternationalKOCsbeingtradedinthemarketforthefirsttime.67FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESSASKATCHEWANGHGOFFSETPROGRAMDuetochangesinfederalbackstoprequirements,Saskatchewan’sproposedprovincialOffsetProgramisbeingredesigned.AmodifiedOffsetProgramwillbelaunchedinconjunctionwiththeprovince’supdatedOBPSin2023.SOUTHAFRICACARBONTAXOFFSETSYSTEMTheSouthAfricanCarbonTaxOffsetsystemcurrentlyoperatesthrougha“gatekeeping”model,wherebyprojectsinSouthAfricadevelopedundertheCDM,theVCS,andtheGoldStandardarepotentiallyeligible.TheSouthAfricancarbonoffsettingregulationswereamendedinJuly2021.Thegovernmentisalsoconsideringdevelopingitsowncreditingmechanism.InJanuary2022,theSouthAfricanDepartmentofMineralResourcesandEnergyreleasedforpubliccommentadraftframeworktodevelopdomesticcarbonoffsetstandards.Thedraftframeworksetsouttherequirements,criteriaforselection,evaluation,andapprovalofdomesticstandards.SPANISHCARBONFUNDFORASUSTAINABLEECONOMYInlate2020,thescopeoftheSpanishCarbonFundforaSustainableEconomywasbroadenedinlinewiththenationalpolicyonclimatechangeandtheincomingadditionaleffortsneededtoachievecarbonneutralityby2050.ThegovernmentstillintendstoacquirecreditscomingfromactivitiescarriedoutthroughtheUNFCCCandtheParisAgreementframework.Thosechangeswillbefullyoperationalfrom2022onwards.SRILANKACARBONCREDITINGSCHEMETheSriLankaCarbonCreditingScheme(SLCCS)wasinitiatedastheSriLankaCarbonStandardin2013,butwasrestructuredastheSLCCSin2016.Updatedprogramguidelineswerereleasedin2021,whichincluderevisedrequirementsforprojectvalidation,verification,andregistration.C.2INDEPENDENTCREDITINGMECHANISMSGOLDSTANDARDTheGoldStandardisseekingtolaunchaninitiativetodevelopdigitizationtechnologiesforsettinguptheMRVprocessesofcarbonmarkets.Theaimistodevelopatoolthatcanalsomonitorotherbenefitsbeyondemissionreductions,liketheprogressachievedtowardtheSDGs.167ThisdevelopmenttakesplaceinacontextwheremuchoftheprojectdevelopmentandMRVisstillconductedmanually,anditaimstoblendaspectrumoftechnologies,includingdigitalmethodologiesandworkflows,internetofthingsfordatagathering,distributedledgertechnology,andsmartcontractsthatcanenhancedataquality,reducetimeandcosts,andprovideaccesstosmallerorlessexperiencedprojectsupporters.TheinitiativeisgoingtobesupportedbyGoogle.orgCharitable,whichprovidedagrantofUSD1milliontotheGoldStandard.168VERIFIEDCARBONSTANDARDVerraisintheprocessofupdatingitsVerifiedCarbonStandardAvoidingUnplannedDeforestationandDegradationmethodologiestoshowthelatestbestpracticesoncarboncreditsforREDD+activities.Theupdatedmethodologieswillincludestandardizedprocessesforactivitydatageneration,baselinedevelopment,monitoring,andleakage.TheseprocessesaimtoguaranteethatindividualREDD+projectscontinuetodirectcarbonfinancetoendangeredforestswhiletheevolutionofjurisdictionalREDDprogramsisstillinprogress.169ConsultationonthenewmethodologieswillcloseinMay2022.Theseconsultationswillinformtherevisionofthemethodologiesandwillbefollowedbyanassessmentofavalidation/verificationbody.Verraintendstopublishtherevisedmethodologiesbytheendof2022.CLIMATEACTIONRESERVETheClimateActionReservelaunchedaprocesstodevelopaBiocharProtocolforquantifying,monitoring,reporting,andverifyingtheclimatebenefitsfromtheproductionofbiochar.170BiocharproductionsequestersCO2andrelatestoactivitiessuchasproducingfeedstocksfromagriculturalresiduesandotherwastebiomasssourcessuchastimberharvests.Theprotocolwilldefineeligiblebiocharproductionoperations,aswellasendusesforwhichthepermanenceofsequesteredcarboncanbereasonablyestimated.Theprotocolisdevelopedthroughamultistakeholderworkgroupwithrepresentativesfromindustry,projectdevelopers,nongovernmentalorganizations,verificationbodies,andothers,andisexpectedtobeapprovedandlaunchedin2022.171AMERICANCARBONREGISTRYTheAmericanCarbonRegistryintroducedanewfunctionalityinitsregistrytolabelcreditsas“carbonremovals,”distinguishingthemfromemissionreductioncredits,withtheaimofincreasingtransparencyregardingcreditattributesforcreditbuyers.172Projectsthatgeneratebothcarbonremovalsandemissionreductions,suchasimprovedforestmanagementprojects,candistinguishbetweenthetwocredittypesuponissuance.Here,removalcreditsrepresentthecarbonsequesteredinnewtreesbeinggrownintheprojectarea,whereasemissionreductionsrepresentthecarbonreducedthroughimprovedharvestingtechniques.17368FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESC.3INTERNATIONALMECHANISMSCLEANDEVELOPMENTMECHANISMWiththeendofthesecondphaseoftheKyotoProtocol,theCDMbeginsitstransitiontothemechanismscreatedundertheParisAgreement.ActivitiesregisteredundertheCDMareeligibletotransitiontotheArticle6.4mechanismunderthefollowingcircumstances:174•TherequesttotransitiontheCDMactivitytoArticle6.4mustbemadebyDecember31,2023.HostcountryapprovalforsuchtransitionsmustbemadebyDecember31,2025.•Onceapproved,theactivitymaycontinuetofollowitscurrentmethodologyuntiltheendofitscurrentcreditingperiodorDecember31,2025(whicheverisearlier).Afterthisdate,itwillhavetofollowthemethodologiesapprovedunderArticle6.4.•ThecertifiedemissionreductionsissuedundertheCDMmaybeusedtoachievefirstNDCs,providedthattheactivitywasregisteredonorafterJanuary1,2013.Thehostcountrywillnotberequiredtoapplyacorrespondingadjustment.AlthoughtheArticle6.4mechanismisbuiltonthepreviousexperienceoftheCDM,itwillhaveitsownsetofrules,modalities,andprocedures.CORSIATheICAOCORSIApilotphasestartedon1January2021.However,aviationemissionsremainbelowbaselinelevelsfollowingthedecisiontouse2019emissionsasthebaseline,andareunlikelytoexceedtheselevelsuntilatleast2023,whichmarkstheendofCORSIA'spilotphase.175AsofMarch2021,108stateshavesignedupforCORSIA’spilotphase.Attheendof2021,eligibleemissionunitswereapprovedfromeightprograms:AmericanCarbonRegistry,ArchitectureforREDD+Transactions,ChinaGHGVoluntaryEmissionReductionProgram,CleanDevelopmentMechanism,ClimateActionReserve,GlobalCarbonCouncil,GoldStandard,andVerifiedCarbonStandard.During2022,theTechnicalAdvisoryBodywillreassessinterestedeligibleCORSIAEligibleEmissionsUnitProgramstoinformtheICAOCouncilonwhichemissionsunitsshouldbeeligibleforuseunderCORSIAinthefirstphasestartingin2023.17669FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESEndnotes1IntergovernmentalPanelonClimateChange,WGIISixthAssessmentReport:SummaryforPolicymakers,2022.2M.Pathak,R.Slade,P.R.Shukla,J.Skea,R.Pichs-Madruga,D.Ürge-Vorsatz,“TechnicalSummary,”inClimateChange2022:MitigationofClimateChange.ContributionofWorkingGroupIIItotheSixthAssessmentReportoftheIntergovernmentalPanelonClimateChange,editedbyP.R.Shukla,J.Skea,R.Slade,A.AlKhourdajie,R.vanDiemen,D.McCollum,M.Pathak,S.Some,P.Vyas,R.Fradera,M.Belkacemi,A.Hasija,G.Lisboa,S.Luz,J.Malley.(Cambridge,UKandNewYork,NY,USA:CambridgeUniversityPress,2022).3ClimateActionTracker,“Homepage,”accessedMarch3,2022,https://climateactiontracker.org/.4InternationalEnergyAgency,“COP26ClimatePledgescouldHelpLimitGlobalWarmingto1.8°C,butImplementingThemWillBetheKey,”November4,2021.5InternationalEnergyAgency,WorldEnergyOutlook—ExecutiveSummary,2021.6Pathaketal.,"TechnicalSummary."7InternationalEnergyAgency,“GlobalCO2EmissionsReboundedtoTheirHighestLevelinHistoryin2021,”March8,2022.8UnitedNationsCommitteeofExpertsonInternationalCooperationinTaxMatters:EnvironmentalTaxIssues,“Chapter2:AnIntroductionforPolicymakers—CarbonTaxationHandbook.NotebytheSecretariat,”April12,2020.9High-LevelCommissiononCarbonPrices,ReportoftheHigh-LevelCommissiononCarbonPrices(Washington,DC:WorldBank,2017).10I.Parry,C.Veung,andD.Heine,“HowMuchCarbonPricingIsinCountries’OwnInterests?TheCriticalRoleofCo-Benefits,”ClimateChangeEconomics6,no.4(2015):1–26.11J.C.Minx,W.F.Lamb,R.M.Andrew,J.G.Canadell,M.Crippa,N.Döbbeling,P.M.Forster,D.Guizzardi,J.Olivier,G.P.Peters,J.Pongratz,A.Reisinger,M.Rigby,M.Saunois,S.J.Smith,E.Solazzo,andH.Tian,"AComprehensiveandSyntheticDatasetforGlobal,Regional,andNationalGreenhouseGasEmissionsbySector1970–2018withanExtensionto2019,”EarthSystemScienceData13,no.11(2021):5213–52.12ChineseMinistryofEcologyandEnvironment,“TheFirstComplianceCycleoftheNationalCarbonMarketEndedSuccessfully,”January1,2022.13T.Luyue,“TheFirstYearofChina’sNationalCarbonMarket,Reviewed,”ChinaDialogue,February17,2022.14M.XuandD.Stanway,“ChinaSlamsFirmsforFalsifyingCarbonData,”Reuters,March15,2022.15EuropeanCommission,ProposalforaDirectiveoftheEuropeanParliamentandoftheCouncilamendingDirective2003/87/ECestablishingasystemforgreenhousegasemissionallowancetradingwithintheUnion,Decision(EU)2015/1814concerningtheestablishmentandoperationofamarketstabilityreservefortheUniongreenhousegasemissiontradingschemeandRegulation(EU)2015/757,September14,2021.16CounciloftheEuropeanUnion,“PresidencyReportfortheEnvironmentalCouncilMeetingof17March2022,”March8,2022.17MarshallIslandsandSolomonIslands.2021.MEPC76/7/12.18Norway.2021.MEPC76/7/2.19InternationalChamberofShipping,“InternationalChamberofShippingSetsOutPlansforGlobalCarbonLevytoExpediteIndustryDecarbonisation,”September6,2021.20Trafigura,“AProposalforanIMO-ledGlobalShippingIndustryDecarbonisationProgramme,”2020.21D.,Baresic,I.Rojon,A.Shaw,andN.Rehmatulla,“ClosingtheGap:AnOverviewofthePolicyOptionstoClosetheCompetitivenessGapandEnableanEquitableZero-EmissionFuelTransitioninShipping,”January2022;WeShowtheWorldItIsPossible:IndustryTransitionStrategy(London:MærskMc-KinneyMøllerCenterforZeroCarbonShipping,2021).22ClimateVulnerableForum,“Dhaka-GlasgowDeclarationoftheCVF,”November2,2021.23G.Dominioni,D.Englert,R.Salgmann,andJ.Brown,“CarbonRevenuesfromInternationalShipping:EnablinganEffectiveandEquitableEnergyTransition–SummaryforPolicymakers”,April2022.24O.Wannan,“SoaringDemandtoPolluteBlowsGovernment'sFirstLimitonCarbonUnits,”Stuff,September2,2021.25O.Wannan,“EveryoneWantstoBuyCarbon—SoWhyDoesNoOneWanttoSell?,”Stuff,March18,2022.26GovernmentoftheUnitedKingdom,“UKETSAuthorityStatement:CostContainmentMechanismDecision—December2021,”January18,2022.27GovernmentoftheUnitedKingdom,"UKETSAuthorityStatement."28L.Yulismanm,“IndonesiaDelaysCarbonTaxtillJulytoHelpEconomicRecovery,”TheStraitsTimes,March30,2022.29Milenio,“HaciendaeliminaimpuestoagasolinaMagnaydiéselantealzadepreciosporconflictoenUcrania,”March4,2022.30I.Gerretsen,“SouthKoreaProposesCuttingEmissions40%by2030,”ClimateHomeNews,June16,2021.70FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXES31D.Nachtigall,J.Ellis,andS.Errendal,“CarbonPricingandCOVID-19:PolicyChanges,ChallengesandDesignOptionsinOECDandG20Countries,”OECD,March2022.32ANZResearch,“CarbonMarkets101:PricingClimateChangeSolutions,”July29,2021.33S.Reklev,“SKMarket:KAUsClimbto19-mthHighasFinancialsEnterMarket,”CarbonPulse,December20,2021.34LegislativeAnalyst’sOffice,“Cap-and-TradeAuctionUpdateandGGRFProjections,”December6,202135InternationalEmissionsTradingAssociation,“CarbonMarketBusinessBrief,”May2021.36InternationalEmissionsTradingAssociation,"CarbonMarketBusinessBrief."37See,e.g.,Euractiv,“Europe’sEnergyPriceHikeFuelledbySpeculators,SpainandPolandSay,”November25,2021.38EuropeanSecuritiesandMarketsAuthority,FinalReport:EmissionAllowancesandAssociatedDerivatives,March28,202239F.DiSarioandB.Garside,“KeyEULawmakerPlanstoProposeStepstoCurbCarbonMarket‘Manipulation,’”CarbonPulse,January14,2022.40F.DiSario,M.Szabo,andB.Garside,“EULawmakersMusterEffortstoCurbCarbonMarketSpeculation,”CarbonPulse,February4,2022.41Ecoeye,KoreanETSMarketReview2021,February11,2022.42L.Oliver,“CarbonMarkets—EverythingYouNeedtoKnowas2022TakesOff,”KraneShares,January27,2022.43A.Vitelli,R.Manuell,andM.Szabo,“ANALYSIS-AutopsyofaCrash:Europe’sCarbonCollapseSaidCausedbyCashCall,FuelledbyBearishTechnicalsandSentiment,”CarbonPulse,March9,2022.44M.LithgowandM.Szabo,“Q4RGGIAuctionClearsatRecordHigh,TapsCostContainmentfor1stTimein6Years,”CarbonPulse,December3,2021.45High-LevelCommissiononCarbonPricing,Report.46P.Bhat,“CarbonNeedstoCostatLeastUSD100/tonneNowtoReachNetZeroby2050:ReutersPoll,”Reuters,2022.47C.Nelder,“GreenHydrogenandCarbonPrices(No.149)”[Audiopodcastepisode],TheEnergyTransitionShow,XENetwork,June9,2021.48M.Lewis,“DeepDecarbonization—GreenHydrogen,NetZeroandtheFutureoftheEUETS,”BNPParibas:InvestorsCorner,February10,2020;S.Nasralla,“CarbonCaptureServicescouldBreakEveninNext10Years—Equinor,”Reuters,December1,2021.49GovernmentoftheUnitedKingdom,“WorldLeadersJoinUK’sGlasgowBreakthroughstoSpeedUpAffordableCleanTechWorldwide,”November2,2021.50InternationalEnergyAgency,“ReportExtract:AcceleratingDeployment,”2020.51S.PosticandM.Fetet,“GlobalCarbonAccountsin2021,”InstituteforClimateEconomics,October2021.52I.Holovko,A.Marian,andM.Apergi,TheRoleoftheEUCBAMinRaisingClimatePolicyAmbitioninTradePartners:TheCaseofUkraine,IASS,October2021.53Ferrerre,“ElproyectodeLeydeRendicióndeCuentasprevélamodificacióndelImpuestoEspecíficoInterno(IMESI)aplicablealasgasolinas,”September9,2021.54L.Pei-chiandK.Wang,“TaiwanPlanstoIntroduceCarbonPricingMechanismby2023,”FocusTaiwan,October13,2021.55J.Loe,“EmergingEconomiesShare‘GraveConcern’overEUPlansforaCarbonBorderLevy,”EURACTIV,April12,2021.56PrimeMinisterofCanadaJustinTrudeau,“DeputyPrimeMinisterandMinisterofFinanceMandateLetter,”December16,2021.57UKParliament,“EnvironmentalAuditCommitteeInquiry:CarbonBorderAdjustmentMechanisms,”2021.58L.Friedman,“DemocratsProposeCarbonBorderTaxBasedonCountries’GreenhouseGasEmissions,”NewYorkTimes,October17,2021.59A.R.Mishra,“BRICSSummitIsLikelytoStronglyOpposeCarbonTaxProposedbyEU,”GreenFiscalPolicyNetwork,September16,2021.60T.Gore,“TheProposalforaCarbonBorderAdjustmentMechanismFailstheAmbitionandEquityTests,”HeinrichBoellStiftung,September13,2021.61EuropeanParliament,“DRAFTOPINIONoftheCommitteeonDevelopmentfortheCommitteeontheEnvironment,PublicHealth,andFoodSafetyontheProposalForARegulationOfTheEuropeanParliamentandoftheCouncilEstablishingaCarbonBorderAdjustmentMechanism,”January1,2022.62K.Taylor,“EUCountriesAgreeWorld’sFirstCarbonTariff,butLeaveOutControversialIssues,”EURACTIV,March16,2022.63I.Parry,S.Black,andJ.Roaf,“ProposalforanInternationalCarbonPriceFloorAmongLargeEmitters,”InternationalMonetaryFund,June18,2021.64N.Okonjo-Iweala,“AdoptingaGlobalCarbonPriceIsEssential,”FinancialTimes,October14,2021.65UNEnvironmentProgrammeFinanceInitiativewithWorldWildlifeFundandGlobalOptimism,“U.N.-ConvenedNet-ZeroAssetOwnerAllianceDiscussionpaperongovernmentalcarbon-pricing,”2021.66PrimeMinisterofCanadaJustinTrudeau,“MandateLetter.”67F.Simon,“FranceCallsforCarbonPriceFloortoCounterOilCrash,”EURACTIV,April27,2020.68G7Germany,“PolicyPrioritiesforGermany’sG7Presidencyin2022,”January2022.69heGovernmentofCalifornia,TheGovernmentofNewZealand,andTheGouvernementduQuébec,“JointDeclarationonCooperationintheFightAgainstClimateChange,”November2021.71FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXES70StateofWashingtonDepartmentofEcology,“ClimateCommitmentAct,”2021.71M.Lithgow,“WashingtonMaySeekCaliforniaCap-and-TradeAdjustmentstoFacilitateLinkage—Senator,”CarbonPulseJanuary7,2022.72L.Schneider,J.Cludius,andS.LaHozTheuer,AccountingfortheLinkingofEmissionTradingSystemsunderArticle6.2oftheParisAgreement,InternationalCarbonActionPartnership,November2018.73E.Rauhala,R.Noack,andV.Guinan-Bank,“Europe’sPlantoWeanOffRussianEnergycouldLeadtoPriceShocksandPoliticalBlowback,”WashingtonPost,March9,2022.74W.VanGaal,“PolandThreatenstoVetotheEU’sFitfor55,”EUObserver,December21,2021.75A.KumenovandJ.Lillis,“KazakhstanExplainer:WhyDidFuelPricesSpike,BringingProtestorsOutOntotheStreets?,”Eurasianet,January4,2022.76P.JonesandR.Smyth,“TheKazakhstanProtestsEscalatedQuickly.Here’sWhy,”WashingtonPost,January8,2022.77A.Abdurasulov,“KazakhstanUnrest:GovernmentRestoresFuelPriceCapafterBloodshed,”BBCNews,January6,2022.78UnitedNations,ParisAgreementtotheUnitedNationsFrameworkConventiononClimateChange,December12,2015;EuropeanBankforReconstructionandDevelopment,‘WhatIsaJustTransition?,”2022.79L.Pulkkinen,“WashingtonPasseditsCap-and-TradeClimateLegislation.NowWhat?,”USNEWS,May20,2021.80IISD,BuildingMomentumforaJustTransitioninCanada:PerspectivesfromCivilSociety,”April2021.81MinistryofNationalDevelopmentPlanningIndonesia,AGreenEconomyforaNet-ZeroFuture:HowIndonesiacanbuildbackbetterafterCOVID-19withtheLowCarbonDevelopmentInitiative(LCID),2021.82F.DiSario,“OppositiontoSecondEUETSDeepens,asDivisionsEmergeamongLargestPoliticalGroup,”CarbonPulse,March3,2022.83CityandStateEPAPennsylvania,“PennsylvaniaSettoPublishFinalCarbonPricingRegulation,”April22,2022.84DepartmentofPublicExpenditureandReformIreland,Budget2022:TheUseofCarbonTaxFunds2022.85EuropeanCommission,“SocialClimateFund,”2022.86EuropeanCommission,“CommissionPresentsGuideforaFairTransitiontowardClimateNeutrality,”December14,2021.87EuropeanCommission,“TheJustTransitionMechanism:MakingSureNoOneIsLeftBehind.”88TheEMInsightsTeam,“VoluntaryCarbonMarketsTopUSD1Billionin2021withNewlyReportedTrades,aSpecialEcosystemMarketplaceCOP26Bulletin,”EcosystemMarketplace,November10,2021.89TheEMInsightsTeam,“VoluntaryCarbonMarketsTopUSD1Billion.”90ICAP,EmissionsTradingWorldwide:StatusReport2021,InternationalCarbonActionPartnership,2021.91IATA,“PassengerDemandRecoveryContinuedin2021butOmicronHavingImpact,”January25,2022.92M.Lithgow,“ICAOMovesforwardCORSIAEmissionsRecoveryForecast,DropsOffsetCostEstimates,”CarbonPulse,July6,2021.93TheEMInsightsTeam,“CORSIACarbonMarketDatafromEcosystemMarketplace.ICAOEnvironmentCORSIANewsletter,”EcosystemMarketplace,December1,2021.94M.Lithgow,“ICAOMovesforward.”95ICAO,“CORSIAEligibleEmissionsUnits,”November2021.96Xpansiv,GEO—AClearPathtoCarbonNeutral.97S.Reklev,“SouthKoreaLookingtoFundArticle6PilotProjects,”CarbonPulse,April4,2022.98UNFCCCSecretariat,NationallyDeterminedContributionsundertheParisAgreement.SynthesisReportbytheSecretariat,September17,2021.99A.Michaelowa,A.Espelage,L.‘tGilde,N.Kramer,P.Censkowsky,S.Greiner,H.Ahonen,G.Victoria,S.Hoch,S.Ombuya,S.Dalifume,“Article6ReadinessinUpdatedandSecondNDCs,”PerspectivesClimateGroupandClimateFocus,October27,2021.100EcosystemMarketplace,‘MarketsinMotion’,StateoftheVoluntaryCarbonMarkets2021:Installment1,ForestTrendsAssociation,2021.101S.Zwick,“IncreasedFinancialSectorParticipationtoDramaticallyChangeVoluntaryCarbonMarket—Panel”CarbonPulse,April27,2021.102IATA,“NetZeroCarbon2050Resolution:FactSheet,”2021;IATA,“IATAMembers,”2022.103B.Cahill,“CredibilityGapforCarbon-NeutralLNG,”CSIS,January19,2022.104T.SolsvikandN.Adomaitis,“LundinSellsItsFirst‘CarbonNeutral’OilasClimateActivismGrows,”Reuters,April26,2021.105NewClimateInstitute,CorporateClimateResponsibilityMonitor2022,February2022.106A.P.Moller,“A.P.Moller—MaerskWillOperatetheWorld’sFirstCarbonNeutralLinerVesselby2023—SevenYearsaheadofSchedule,”February17,2021.107A.Azil,V,Barnard,C.Blaufelder,C.Levy,T,Nielsen,B.Ramanathan,PuttingCarbonMarketstoWorkonthePathtoNetZero,October28,2021.108ShellGlobal,ExploringtheFutureoftheVoluntaryCarbonMarket,2021.109TroveResearch,VoluntaryCarbonMarket:2021inReviewand2022Outlook,2022.110NewClimateInstitute,CorporateClimateResponsibilityMonitor2022,February2022.111Microsoft,MicrosoftCarbonRemoval—LessonsFromAnEarlyCorporatePurchase—72FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXESJanuary2021.112S.Favasuli,“DebateonAvoidanceandREDD+CarbonProjectstoDominateNextUNClimateConference,”S&PGlobal,January12,2022.113S.Reklev,“PapuaNewGuineatoPutMoratoriumonREDD+ProjectsforVoluntaryMarket,”CarbonPulse,March2,2022.114J.LiuandS.Reklev,“ChineseProvinceSlamsBrakesonForestryOffsetProjectsfortheInternationalVoluntaryMarket,”CarbonPulse,March2,2022.115EcosystemMarketplace,‘MarketsinMotion’.116EcosystemMarketplace,“VoluntaryCarbonMarketsTopUSD1Billionin2021withNewlyReportedTrades,aSpecialEcosystemMarketplaceCOP26Bulletin,”November10,2021.117EcosystemMarketplace,‘MarketsinMotion’.118EcosystemMarketplace,‘MarketsinMotion’.119Verra,“SustainableDevelopmentVerifiedImpactStandard.”120TheGoldStandard,“RuleUpdate:TheSDGImpactTool,”2021.121M.Filmanovic,“TheCarbonProjectDevelopmentCurve,”Abatable,March17,2022.122S.Choudhury,“ANewGlobalCarbonExchangeWillBeLaunchedinSingaporeThisYear,”CNBC,May21,2021.123NatWestGroup,“BanksJoinForcestoCreateVoluntaryCarbonMarketplace,”July7,2021.124BusinessWire,“2021XpansivCarbonVolumeRises288%DrivenbySurgeofCorporateNet-ZeroandESGDemand,”January13,2022.125S&PGlobal,“INTERVIEW:SpeculativeCapitalOffersGrowthOpportunityforCarbonMarket—AirCarbon,”September14,2021.126EcosystemMarketplace,‘MarketsinMotion’.127EcosystemMarketplace,‘MarketsinMotion’.128M.Filmanovic,“TheStateoftheCarbonDeveloperEcosystem2021,”AbatableDecember22,2021.129H.Holger,“CryptocurrencyTradersMoveIntoCarbonMarkets,”TheWallStreetJournal,January10,2022.130Seee.g.,WorldBank,BlockchainandEmergingDigitalTechnologiesforEnhancingPost-2020ClimateMarkets,March2018;WorldBank,SummaryReport:SimulationonConnectingClimateMarketSystems,2019;UNEP,“DesigningaBlockchainModelfortheParisAgreement’sCarbonMarketMechanism,”2020;AirCarbonExchange,“UNFCCCPartnerswiththeAirCarbonExchangetoPromoteCarbonOffsetting,”January12,2021.131M.Grady,L.DeMarco,R.Saines,E.A.Serra,andJ.Shopley,“COMMENT:IETACouncilTaskGrouponDigitalClimateMarkets—KeyFindingsandRecommendations,”CarbonPulse,March28,2022.132G.Terzo,“MarkCubanThrustsCarbonEconomyCryptoProjectIntoSpotlight,”Yahoo!Finance,November16,2021.133S.Reklev,“CryptoCarbonDemandBringsBackShunnedHFC-23Credits,”CarbonPulse,December13,2021.134ClimateWarehouse,“ExploringthePotentialofEmergingTechnologiesforConnectingClimateMarkets,”accessedMarch29,2022.135S.Reklev,“BlockchainDoorClosingforOlderCarbonCredits,”CarbonPulse,March3,2022.136S.Reklev,“TechFirmRaidsBCTPoolAheadofNature-basedCarbonTokenLaunch,”January31,2022.137S.Leugers,“COMMENT—BlockchainforBetter:UntanglingTokenisationandCarbonMarkets,”CarbonPulse,March8,2022,138Leugers,“COMMENT.”139Seee.g.,GoldStandard,“TermsofUse,”2019,140Gradyetal.,“COMMENT.”141UNFCCC,NationallydeterminedcontributionsundertheParisAgreement:Synthesisreportbythesecretariat.ConferenceofthePartiesservingasthemeetingofthePartiestotheParisAgreement.ThirdsessionGlasgow,31Octoberto12November2021(Bonn,Germany:UNFCCC,2021).142IETA,TheAnatomyoftheCarbonMarket.MaximisingClimateAmbitions.Article6,2021.143R.Macquarie,“SearchingforTrustintheVoluntaryCarbonMarkets,”LSEBusinessReview,February16,2022.144F.Schwartzkopff,“CrazyCarbonOffsetsMarketPromptsCallsforRegulation,”Bloomberg,January6,2022.145Aziletal.,PuttingCarbonMarketstoWork.146NewClimateInstitute,CorporateClimateResponsibilityMonitor.147D.IngemarHedin,“NetZeroandCarbonNeutralClaimsUnderScrutiny,”EuromonitorInternational,January21,2022.148D.CullenwardandD.Victor,“Chapter6:Offsets,”inMakingClimatePolicyWork(Cambridge,England:PolityPress,December2020).149C.Strecketal.,“WeMustProtectIntactForests,butCORSIAGotItWrong,”CarbonPulse,April14,2022.150FederalOfficefortheEnvironmentofSwitzerland,AgreementsArticle6.151SwedishEnergyAgency,“COP26:GhanaandSwedenSignsAgreementforCooperationundertheParisAgreement,”November10,2021.152GoldStandard,“GoldStandardandSwedishEnergyAgencyPartnertoEnsureIntegrityInternationalCooperationundertheParisAgreement,”August25,2021.153VCMI,FeedbackonVCMIConsultationReport,2021;VCMI,Roadmap:EnsuringHigh-IntegrityVoluntaryCarbonMarkets,2021.73FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXES154TheWorldBank,“MitigationActionAssessmentProtocol.”155Seee.g.,A.Bjørn,S.Lloyd,andD.Matthews,“FromtheParisAgreementtoCorporateClimateCommitments:EvaluationofSevenMethodsforSetting‘Science-Based’EmissionTargets,”EnvironmentalResearchLetters16,no.5(2021):054019.156Science-BasedTargetsInitiative,“CompaniesTakingAction,”2021.157SBTi,“BusinessAmbitionfor1.5°C.”158J.HallandJ.Bednar,“CarbonRemovalWillCostasMuchAnnuallyastheNHSBudget—butOxfordResearchShowsPolluterscouldPay,”UniversityofOxfordNews,October6,2021.159EuropeanCommission,EDGAR—EmissionsDatabaseforGlobalAtmosphericResearch.GlobalGreenhouseGasEmissions.EDGARv6.0.160EnvironmentandClimateChangeCanada,“NationalInventoryReport1990–2020:GreenhouseGasSourcesandSinksinCanada,”Canada’sSubmissiontotheUnitedNationsFrameworkConventiononClimateChange,April142022.161MassachusettsDepartmentofEnvironmentalProtectiononbehalfoftheCommonwealthofMassachusetts,“MarketMonitorReportontheElectricityGeneratorEmissionsLimitsProgram(310CMR7.74):Auction2022-2,”March18,2022.162IntercontinentalExchange,Inc.,“ReportCenter.”163RGGI,Inc.,“RGGICO2AllowanceTrackingSystem.TransactionPriceReport.”164IntercontinentalExchange,Inc.,“ICEFuturesEurope.UKAFutures.”165InternationalMonetaryFund,ExchangeRateArchivesbyMonth.166TransportationandClimateInitiativeProgram,“TransportationandClimateInitiativeProgram–MemorandumofUnderstanding”,December2020.167GoldStandard,“Google.orgBacksGoldStandardtoBuildDigitalSolutionstoHelpCarbonMarketsWorkforClimateJustice”[MediaRelease],February10,2022.168GoldStandard,“Google.orgBacksGoldStandard.”169Verra,“PublicConsultation:UpdatestoVCSAvoidingUnplannedDeforestationandDegradation(AUDD)Methodologies,”March31,2022.170ClimateActionReserve,“BiocharProtocol,”June23,2021.171ClimateActionReserve,“BiocharProtocol.”172ClimateActionReserve,“BiocharProtocol.”173AmericanCarbonRegistry,“ACRLaunchesInnovativeRegistryInfrastructureforRemovalCredits,”April18,2022.174UNFCCC,“MattersrelatingtoArticle6oftheParisAgreement:Rules,modalitiesandproceduresforthemechanismestablishedbyArticle6,paragraph4,oftheParisAgreement,”2021.175ICAO,CORSIANewsletterMay2021,May2021.176ICAO,CORSIANewsletterMarch2022,March2022.74FOREWORDCHAPTER1CHAPTER3SUMMARYCHAPTER2ANNEXES

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