ExecutivesummaryStateandTrendsofCarbonPricing2022ExecutivesummaryCARBONPRICINGCANPROVIDETHEIMPETUSFORECONOMICTRANSFORMATIONANDRECOVERY•Moreambitiouscarbonpricescanhelpclosethegapbetweenpledgesandpolicyand“keep1.5alive.”•Alongwithloweringemissions,carbonpricingcanimproveenergyandindustrialefficiency,limitrelianceonimportedenergy,promotecleanerair,protectandregeneratelandscapes,andprovideavaluablesourceofgovernmentrevenue.•Butadoptingcarbonpricesremainspoliticallychallenging,particularlyamidrisinginflationandenergyprices.Thereisaclearneedtoensurepoliciesarefair,effective,andembeddedwithinintegratedclimateandsocialpolicies.ExecutivesummaryDIRECTCARBONPRICINGCONTINUESTOBEADOPTEDBUTGLOBALCOVERAGEREMAINSLOW•Worldwide,68carbonpricinginstruments(CPIs),includingtaxesandemissionstradingsystems(ETSs),areoperatingandthreemorearescheduledforimplementation.•CPIsinoperationcoverapproximately23%oftotalglobalgreenhousegas(GHG)emissions.Thisrepresentsasmallincreaseintotalglobalcoverageasaresultoffournewsystemscommencinginthepastyear.•TheInternationalMaritimeOrganizationisconsideringplacingapriceonemissionsfrominternationalshippingactivities.Ifadopted,thiswouldrepresentamajorstepintacklingglobalGHGemissions.ExecutivesummaryMAPOFCARBONTAXESANDEMISSIONSTRADINGSYSTEMSETSimplementedorscheduledforimplementationCarbontaximplementedorscheduledforimplementationETSandcarbontaximplementedorscheduledETSimplementedorscheduled,carbontaxunderconsiderationCarbontaximplementedorscheduled,ETSunderconsiderationETSorcarbontaxunderconsiderationIndonesiaSingaporeBruneiSouthAfricaBotswanaNewZealandMexicoKazakhstanPakistanCanadaThailandVietnamMalaysiaTurkeyEUChinaColombiaChileSenegalBrazilCôted’IvoireMoroccoIsraelIcelandArgentinaUruguayCaliforniaJapanRepublicofKoreaNorwayUKSwedenSpainRomaniaPortugalPolandNetherlandsUkraineLithuaniaLatviaItalyIrelandGreeceGermanyFranceFinlandEstoniaDenmarkBulgariaBelgiumLuxembourgLiechtensteinCataloniaSloveniaAustriaSwitzerlandHungarySerbiaMontenegroSakhalinOregonJaliscoHawaiiWashingtonTaiwan,ChinaShenyangTokyoTianjinShenzhenShanghaiSaitamaHubeiGuangdong(exceptShenzhen)FujianChongqingBeijingZacatecasTamaulipasPennsylvaniaMassachusettsBajaCaliforniaTCIRGGIManitobaSaskatchewanQuébecOntarioNovaScotiaAlbertaPrinceEdwardIslandNorthwestTerritoriesNewfoundlandandLabradorNewBrunswickBritishColumbiaCarbonpricinginitiativesareconsidered“scheduledforimplementation”oncetheyhavebeenformallyadoptedthroughlegislationandhaveanofficial,plannedstartdate.Carbonpricinginitiativesareconsidered“underconsideration”ifthegovernmenthasannounceditsintentiontoworktowardstheimplementationofacarbonpricinginitiativeandthishasbeenformallyconfirmedbyofficialgovernmentsources.TCIreferstoTransportationandClimateInitiative.RGGIreferstotheRegionalGreenhouseGasInitiative.ExecutivesummarySpainLatviaPolandUruguayNetherlandsArgentinaUnitedKingdomColombiaChileSwitzerlandDenmarkFrancePortugalFinlandSwedenIrelandSloveniaIcelandNorwayLuxembourgUkraineSingaporeSouthAfricaLiechtensteinCanadaSwitzerlandRGGIUnitedKingdomGermanyEUETSKazakhstanNewZealandRep.ofKorea0204060801001201400%20%40%60%80%CarbonpriceUSD/tCO2eCarbontaxETSShareofGHGemissionscoveredinthejurisdictionBubblesizerepresentsabsolutecoveredtotalgreenhousegasemissions.ForCPIsthathavemultiplepricelevels,thepriceapplyingtothelargershareofemissionsisused.ThisisacompositepresentationrepresentingtotalemissionscoveredbycarbonpricinginstrumentsunderthePan-CanadianFramework.ItincludesacombinationofETS-likeandcarbontax-likeinstruments,implementedatbothprovincialandfederallevels.MexicoChinaNationalETSJapanABSOLUTEEMISSIONSCOVERAGE,SHAREOFEMISSIONSCOVERED,ANDPRICESFORCPIsACROSSJURISDICTIONSExecutivesummaryCROSS-BORDERAPPROACHESTOCARBONPRICINGAREINCREASINGLYGAININGTRACTION•TheEuropeanUnion(EU)movedclosertoadoptingitscarbonborderadjustmentmechanism,andCanadaandtheUnitedKingdomareexploringoptionsforsimilarmechanisms.•TheInternationalMonetaryFundandWorldTradeOrganizationareadvocatingforaninternationalcarbonpricingfloor.•Somecountrieshavemovedtowardtheadoptionofinternationalclimateclubs,includingtheproposedUnitedStates(US)-EUCarbon-BasedSectoralArrangementonSteelandAluminumTrade.•Theseapproachescanfortifydomesticsupport,preventcarbonleakage,andencouragemitigationbeyondnationalborders.ExecutivesummaryCARBONPRICESHAVEHITRECORDHIGHSINMANYJURISDICTIONS•RecordETSpriceswereobservedintheEuropeanUnion,California,NewZealand,andRepublicofKorea,amongothermarkets,whileseveralcarbontaxesalsosawpriceshittheirhighestlevelsyet.•Acombinationofpolicyreforms,anticipatedchanges,speculativeinvestmentinterest,andbroadereconomictrends,especiallyinglobalenergycommoditymarkets,aredrivingtheseETSpricespikes.•Nonetheless,pricesmustriseconsiderablymoretomeettheParisAgreementtemperaturegoals,aslessthan4%ofglobalemissionsarecurrentlycoveredbyadirectcarbonpricewithintherangeneededby2030.ExecutivesummaryCARBONREVENUESHAVEINCREASEDSHARPLY•Globalcarbonpricingrevenueincreasedbyalmost60%inthepastyear,toaroundUSD84billion.•Withpricesrisingandreducedfreeallocation,ETSrevenuessurpassedcarbontaxrevenuesforthefirsttime.•Increasingcarbonpricingrevenuescansupportsustainableeconomicrecovery,financebroaderfiscalreforms,orhelpbuffercountriesfromeconomicandinternationalturbulence.ExecutivesummaryCarbontaxETSETSrevenuessurpasscarbontaxrevenuesforthefirsttime74%66%53%53%51%33%26%34%47%47%49%67%$0$10$20$30$40$50$60$70$80$90201620172018201920202021BillionUSDGLOBALCARBONPRICINGREVENUESOVERTIMEExecutivesummaryMARKETSFORCARBONCREDITSAREGROWINGRAPIDLY•Creditsfromindependentcreditingmechanismsclearlydominatethecarbonmarket.•AnnualvoluntarycarbonmarketvalueexceededUSD1billionforthefirsttime,drivenbycorporatecommitments.•Compliancedemandforcarboncreditsremainslimited,thoughnewrulesforinternationalcarbonmarketsunderArticle6oftheParisAgreementprovideclaritythatmayenablefuturegrowth.ExecutivesummaryGLOBALVOLUMEOFISSUANCESBYCREDITINGMECHANISMCATEGORY01002003004005006007008009001000200720082009201020112012201320142015201620172018201920202021MilliontCO2eIndependentmechanismsInternationalmechanismsDomesticmechanismsVerifiedCarbonStandard(62%)TaiwanOffsetProgram(2.6%)CaliforniaOffsetProgram(3.6%)AmericanCarbonRegistry(2%)GoldStandard(9%)CDM(11%)ClimateActionReserve(1%)AustraliaEmissionReductionFund(3.6%)ExecutivesummaryDIVERSEPURCHASERPREFERENCESMAKEMARKETGROWTHUNEVEN•Nature-basedcreditsareinespeciallyhighdemand:forestryandlandusetransactionsmorethandoubledbetween2020and2021.•Increasingdemandforcarbonremovalshasresultedinpriceincreasesforthesecredits.•Thevoluntarycarbonmarketcontinuestobestronglydiverse,withpurchasersplacingwidelydifferentvaluesoncharacteristicssuchassector,geography,andperceivedco-benefits.ExecutivesummaryNEWFINANCIALSERVICES,TECHNOLOGIESANDGOVERNANCEFRAMEWORKSARESHAPINGCARBONMARKETS•Financialactorsarebecomingmoreactiveinthecarbonmarket,whileblockchainhasenabledanewwaveofdecentralizedfinancialinnovationsthatshowthetechnology’spotentialbuthavereignitedsomelong-standingconcernsabouttransparencyandquality.•Diversegovernanceframeworksareemergingfromstakeholdersandinstitutionsthataimtoaddressconcernsregardingtheintegrityofcarboncreditsandhowcompaniesusethem.•NewrulesonArticle6increasecertaintywhilealsoaddingcomplexitytocarboncreditmarketsandmayleadtoincreasinglydivergentapproachesemergingacrossactorsandgeographies.